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GreecesDebtCrisisExplainedTheNewYorkTimes

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InternationalBusiness
GreecesDebtCrisisExplained
ByTHENEWYORKTIMESUPDATEDJuly13,2015

What the latet?

GreeceanditsEuropeancreditorsannouncedanagreementinBrusselsonMonday
thataimstoresolvethecountrysdebtcrisisandkeepitintheeurozone,butthat
willrequirefurtherbudgetarybelttighteningthatPrimeMinisterAlexisTsipras
couldhavetroublesellingbackinAthens.
TheagreementdoesnotguaranteethatGreecewillreceiveitsthirdbailoutinfive
years.Butitdoesallowthestartofdetailednegotiationsonanewassistance
packageforGreece.
AnyeasingofGreecesdebtrepaymentobligationswouldnotincludesomething
Greecehadpreviouslymadeaconditionofanydeal:asocalledhaircut,or
reductionoftheoveralldebt,whichismorethan300billion.

What happen next?

OneopenquestioniswhetherthedealgivesenoughconfidencetotheEuropean
CentralBanktoletitcontinuechannelingsorelyneededemergencyfundingto
Greekbanks.
AspartofGreecescommitments,ChancellorAngelaMerkelofGermanysaid,a
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GreecesDebtCrisisExplainedTheNewYorkTimes

fundwillbecreatedtousetheproceedsfromsellingoffassetsownedbytheGreek
governmenttohelppaydownthecountrysdebt.Thatfundwouldbetothetune
of50billion,shesaid.
GreecewillalsoberequiredtoseekassistancefromtheInternationalMonetary
Fundandtoagreetolettheorganizationcontinuetomonitorthecountrys
adherencetoitsbailoutcommitments.
TheGreekParliamentwillalsoberequiredtoapprovethetermsoftheagreement
withoutdelay,accordingtothedocumentreleasedonMondaymorning.The
agreementwillcallforGreecetoraisetaxesinsomecasesandparepension
benefits.
Despitetheagreement,Greekbanksareexpectedtoremainclosedthisweek.To
reopen,thebankswouldneedmoreemergencyloansfromtheEuropeanCentral
Bank.

How doe the crii affect the gloal financial tem?

IntheEuropeanUnion,mostrealdecisionmakingpower,particularlyonmatters
involvingpoliticallydelicatethingslikemoneyandmigrants,restswith28national
governments,eachonebeholdentoitsvotersandtaxpayers.Thistensionhasgrown
onlymoreacutesincetheJanuary1999introductionoftheeuro,whichnowbinds
19nationsintoasinglecurrencyzonewatchedoverbytheEuropeanCentralBank
butleavesbudgetandtaxpolicyinthehandsofeachcountry,anarrangementthat
someeconomistsbelievewasdoomedfromthestart.
SinceGreecesdebtcrisisbeganin2010,mostinternationalbanksandforeign
investorshavesoldtheirGreekbondsandotherholdings,sotheyarenolonger
vulnerabletowhathappensinGreece.(Someprivateinvestorswhosubsequently
plowedbackintoGreekbonds,bettingonacomeback,regretthatdecision.)
Andinthemeantime,theothercrisiscountriesintheeurozone,likePortugal,
IrelandandSpain,havetakenstepstooverhaultheireconomiesandaremuchless
vulnerabletomarketcontagionthantheywereafewyearsago.
Det in the uropean Union
Gro government det a a percentage of gro dometic product plotted through the fourth
quarter of 2014.

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Source: urotat

What if Greece left the eurozone?

Attheheightofthedebtcrisisafewyearsago,manyexpertsworriedthatGreeces
problemswouldspillovertotherestoftheworld.IfGreecedefaultedonitsdebt
andexitedtheeurozone,theyargued,itmightcreateglobalfinancialshocksbigger
thanthecollapseofLehmanBrothersdid.
Now,however,somepeoplebelievethatifGreeceweretoleavethecurrency
union,inwhatisknownasaGrexit,itwouldntbesuchacatastrophe.Europe
hasputupsafeguardstolimitthesocalledfinancialcontagion,inanefforttokeep
theproblemsfromspreadingtoothercountries.Greece,justatinypartofthe
eurozoneeconomy,couldregainfinancialautonomybyleaving,thesepeople
contendandtheeurozonewouldactuallybebetteroffwithoutacountrythat
seemstoconstantlyneeditsneighborssupport.
Greece G.D.P. and Unemploment Rate in urope
Firt quarter 2015 average; *ritain i the threemonth average through Feruar.

Source: urotat

Otherssaythatstoosimplisticaview.Despitethefrustrationofendless
negotiations,EuropeanpoliticalleadersseeaunitedEuropeasanimperative.Atthe
sametime,theystillhaventfixedsomeofthebiggestshortcomingsofthe
eurozonesstructurebycreatingamorefederalstylesystemoftransferringmoney
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asneededamongmembersthewaytheUnitedStatesdoesamongitsvarious
states.
ExitingtheeurocurrencyunionandtheEuropeanUnionwouldalsoinvolvealegal
minefieldthatnocountryhasyetventuredtocross.Therearealsonoprovisionsfor
departure,voluntaryorforced,fromtheeurocurrencyunion.

A2013videoonhowGreekswereturningtodirtyandenvironmentallydamaging
solutionsforheatafterthegovernmentraisedtaxesonheatingoilby450percent.
CreditVideobyNikoliaApostolouonPublishDateFebruary03,2013

How did Greece get to thi point?

GreecebecametheepicenterofEuropesdebtcrisisafterWallStreetimplodedin
2008.Withglobalfinancialmarketsstillreeling,GreeceannouncedinOctober
2009thatithadbeenunderstatingitsdeficitfiguresforyears,raisingalarmsabout
thesoundnessofGreekfinances.
Suddenly,Greecewasshutoutfromborrowinginthefinancialmarkets.Bythe
springof2010,itwasveeringtowardbankruptcy,whichthreatenedtosetoffanew
financialcrisis.
Toavertcalamity,thesocalledtroikatheInternationalMonetaryFund,the
EuropeanCentralBankandtheEuropeanCommissionissuedthefirstoftwo
internationalbailoutsforGreece,whichwouldeventuallytotalmorethan240
billioneuros,orabout$264billionattodaysexchangerates.
Thebailoutscamewithconditions.Lendersimposedharshausterityterms,
requiringdeepbudgetcutsandsteeptaxincreases.TheyalsorequiredGreeceto
overhaulitseconomybystreamliningthegovernment,endingtaxevasionand
makingGreeceaneasierplacetodobusiness.

Photo

AfatheranddaughteratademonstrationinAthensinlateJune.CreditEirini
VourloumisforTheNewYorkTimes

If Greece ha received illion in ailout, wh i there

till a crii?
ThemoneywassupposedtobuyGreecetimetostabilizeitsfinancesandquell
marketfearsthattheeurounionitselfcouldbreakup.Whileithashelped,Greeces
economicproblemshaventgoneaway.Theeconomyhasshrunkbyaquarterin
fiveyears,andunemploymentisabove25percent.
ThebailoutmoneymainlygoestowardpayingoffGreecesinternationalloans,
ratherthanmakingitswayintotheeconomy.Andthegovernmentstillhasa
staggeringdebtloadthatitcannotbegintopaydownunlessarecoverytakeshold.
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Manyeconomists,andmanyGreeks,blametheausteritymeasuresformuchofthe
countryscontinuingproblems.TheleftistSyrizapartyrodetopowerthisyear
promisingtorenegotiatethebailoutMr.Tsiprassaidthatausterityhadcreateda
humanitariancrisisinGreece.
Butthecountrysexasperatedcreditors,especiallyGermany,blameAthensfor
failingtoconducttheeconomicoverhaulsrequiredunderitsbailoutagreement.
TheydontwanttochangetherulesforGreece.
Greece Creditor

LizAlderman,JamesKanter,JimYardley,JackEwing,NikiKitsantonis,SuzanneDaley,KarlRussell,Andrew
HigginsandPeterEaviscontributedreporting.

MoreonNYTimes.com

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WhytheGreeceDealMatters
JULY12,2015

IsGreeceWorseOffThantheU.S.DuringtheGreatDepression?
JULY9,2015

GreekCashCrunchGoestoMarket
JULY9,2015

PortraitsFromGreeceasItEnduresaCrisis
JUNE23,2015
2015TheNewYorkTimesCompany
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