C8LLCL uL81 C8lSlS

uareen ALef
ulna Wahba
Saflya Calal
Sarah Panl
urŦ Amlr nasry
lnLroducLlon
W ?ears of unresLralned spendlngţ cheap lendlng and fallure
Lo lmplemenL flnanclal reforms lefL Creece badly exposed
when Lhe global economlc downLurn sLruckŦ 1he debL
levels and deflclLs LhaL exceeded llmlLs seL by Lhe LuroŴ
zone were revealed Ǝ exposedŦ
W ln Lhe flrsL quarLer of 2010ţ Lhe naLlonal debL of Creece
was puL aL t300 bllllon ($413Ŧ6 bllllon)ţ whlch ls blgger
Lhan Lhe counLryƌs economyŦ 1he counLryƌs deflclL (lLs
expendlLure ln comparlson Lo lLs revenue) ls 12Ŧ7ƷŦ
8ackground
Creece durlng llnanclal Crlsls
W Lconomy of Creece
W ÞllCSť Creece has spread Lhe rlsk Lo oLher
weak and lndebLed LuroŴarea economlesŦ
1he AcLual Crlsls
W MosL counLrles have seen esLlmaLes for Lhelr
budgeL deflclL swell over Lhe course of 2009ţ
buL Lhe magnlLude of Lhe Creek revlslons over
boLh 2008 and 2009 and Lhe lmpllcaLlons for
excesslve exLernal debL flnanclng has been
shocklngŦ 1he esLlmaLed 2009 deflclL rose
from 3Ŧ1 Ʒ for 2009 as reporLed Lo Lhe
Luropean Commlsslon durlng Lhe sprlng Lo
12Ŧ7Ʒ
W 1wln ueflclLs
Slnce yƹC+l+C+nŴx
and ?ƹ S+l+1
Lhen (SŴl) (1ŴC) ƹ (xŴM)
lmpacL of Crlsls
W SouLheasLern Lurope
Creece's forelgn pollcy focus on Lhe reglon and
growlng Lrade volumes beLween Lhe
counLrlesţ nelghborlng Serblaţ Albanlaţ
Macedonlaţ 8omanlaţ 8ulgarla and 1urkey
cannoL remaln lndlfferenL Lo Lhe magnlLude of
Lhe crlsls nexL doorŦ
W SplllŴover effecLť
Some splllover effecLs have already sLarLed Lo
manlfesL LhemselvesŦ As Creek 10Ŵyear bonds
fall and ylelds conLlnue Lo remaln above 6Ʒţ
soverelgn debL lssuance and Lhe rlsk premlum
lnvesLors demand Lo hold securlLles emlLLed
by 8omanlaţ Serblaţ 8ulgarla and 1urkey have
been adversely affecLedŦ
W Creece ls already ln ma[or breach of LuroŴ
zone rules on deflclL managemenL and wlLh
Lhe flnanclal markeLs beLLlng Lhe counLry wlll
defaulL on lLs debLsţ Lhls reflecLs badly on Lhe
credlblllLy of Lhe euroŦ
W lmpacL on prlvaLe lndlvldualsť
1he mosL obvlous way would be Lhrough Lax
blllsţ as Lurope agrees Lo rlde Lo Lhe rescue
and help Creece deal wlLh lLs mounLlng publlc
and forelgn debLsŦ
Any asslsLance Lo Creece wlll come aL a cosL LhaL
wlll ulLlmaLely have Lo be borne by Laxpayers
ln Lhe naLlons LhaL conLrlbuLeŦ
W ConLaglon LffecL
Creek crlsls has made lnvesLors nervous abouL
lendlng money Lo governmenLs Lhrough
buylng governmenL bondsŦ
Lverybodyƌs lnLeresL raLes are headlng hlgher as
governmenLs are havlng Lo pay a greaLer rlsk
premlum Lo borrow moneyŦ
W 8educed wealLhť
1akeŴhome pay ls llkely Lo fall as lL ls eroded by
rlslng Laxes and everyone wlll have Lo work
longer before Lhey reLlre Ŵ by whlch Llme Lhey
are llkely Lo flnd LhaL Lhelr penslons have
shrunkŦ
W S|ower recovery
1he crlsls ls also seL Lo slow down Lhe embryonlc
economlc recoveryŦ
eso|ut|on Ǝ Conc|us|onť
W 8a||out p|an
Luropean governmenLs and Lhe lnLernaLlonal MoneLary lund
(lMl) have sLunned global sLock markeLs wlLh a 730bnŴeuro
($973bnŤ £630bn) package of sLandby funds deslgned Lo
see off flnanclal melLdownŦ
1he 27 counLrles of Lhe Luropean unlon (Lu) wlll conLrlbuLe
300bn Luros Lowards Lhe flnanclal safeLy neLŦ 1hey have
been [olned by Lhe lnLernaLlonal MoneLary lund (lMl)ţ
whlch ls provldlng oLher 230bn LurosŦ
1he vasL bulk of Luropeƌs conLrlbuLlon comes from Lhe 16Ŵ
naLlon LuroŴzone blocţ whlch ls promlslng 440bn ln loan
guaranLeesŦ 1he Luropean Commlsslon ls provldlng 60bn
Luros lmmedlaLelyŦ
W ermany and the Luro rescue p|an
W Cermanyƌs parllamenL has approved Lhe
counLryƌs conLrlbuLlon Lo a 730bn euro ($938bnţ
£631bn) rescue deal for Lhe LuroŴzoneŦ
W 1he Cerman conLrlbuLlon ls key Lo Lhe planţ and
would amounL Lo up Lo 148bn LurosŦ Chancellor
Angela Merkel warned LhaL Lhe Luro would be ƍln
dangerƍ wlLhouL sLrong acLlonŦ
W @he ro|e of reece
Creece has ouLllned plans Lo cuL lLs budgeL deflclLţ
or Lhe amounL lLs publlc spendlng exceeds
LaxaLlonţ Lo 8Ŧ7Ʒ of lLs CuÞ ln 2010ţ and Lo less
Lhan 3Ʒ by 2012Ŧ
W !usL before Lhe masslve ballŴouL package was
announced Lhe Creek governmenL pledged Lo
make furLher spendlng cuLs and Lax lncreases
LoLalllng 30bn euros over Lhree years Ŵ on Lop of
ausLerlLy measures already LakenŦ
Concluslon
W Creece's uebL Crlsls has puL Lhe Lu under Lhe
scopeţ Ǝ lL has shlfLed Lhe aLLenLlon Lo Lhe
efflclency Ǝ Lhe success of Lhe LuroŴzoneŦ lL's
consldered as probably Lhe blggesL LesL Lhe Lu (Ǝ
Lhe LMuŴln parLlcular) has gone LhroughŦ Pow
Lhe Lu Ǝ Creece are handllng Lhe crlsls wlLh Lhe
whole ballŴouL plan wlll reflecL Lo whaL exLenL Lhe
Lu ls able Lo funcLlon on lLs own as a powerful
economlc enLlLyŦ
W lL's Loo early yeL Lo measure Lhe effecLlveness of
Lhe ball ouL planŦ

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