The Greek Government Debt crisis Essays - Eurozone Crisis, Eurozone

The Greek Government Debt crisis The Greek Government Debt-Crises The Greek government-debt crisis is one of a number of current European sovereign-debt crises and is believed to have been caused by a combination of structural weaknesses of the Greek economy coupled with the incomplete economic, tax and banking unification of the European Monetary Union. According to Bloomberg Business week, after five straight years of recession, the Eurozones weakest link moves into 2013 with an economy set to further contract, with the worst still yet to come. These fears developed among investors in late 2009 about the countrys inability to meet its debt obligations due to strong increase in government debt levels. Years of unrestrained spending, cheap lending and a failure to implement financial reforms left Greece badly exposed when the global economic downturn struck. As the dust is settling, it shows that Greece is teetering on the brink of default as it faces debts of about $500 billion, while becoming reliant on the International Monetary Fund to supply not only one, but two multi-billion loans, and another bailout on the table, because the crisis is showing no signs of abating. According to the article, European banks have spent the past two years increasing capital buffers and writing down Greek bonds, in anticipation of some disastrous event such as a Greek withdrawal from the euro. This potential exit reflects badly on the credibility of the Euro and could knock the whole Eurozone into the red, affecting the global economy. If European countries continue to resort to rescue packages involving bodies such as the IMF, this would further damage the euro's reputation and could lead to a substantial fall against other key currencies, especially the U.S. dollar. The eurozone's leading economy Germany has been at war with the rest of Europe over how Greece should repay its spiraling debt. Germany has been pushing for a "soft restructuring" of Greece's loans - a move that would make private investors share the burden - but the European Central Bank has warned any compulsory restructuring could lead to a broader crisis. The article referenced that some key financial advisors and investment analysts believe that early indications about the future are favorable, while others are doubtful. What is certain is that if Greece is unsuccessful at pulling itself out of this debt crisis, eventually, the whole Eurozone could be pushed to the brink, generating financial shockwaves across the world that will herald a new global economic slump. What if no deal is reached? The doomsday scenario sees a dramatic slide in confidence as investors retreat from European financial markets. This pushes up the cost of borrowing across the region, triggering new fears about the threat of debt crises in Spain and Italy. This begins to drag on countries with debt exposure to Spain and Italy. Eventually, the whole eurozone could be pushed the brink, generating financial shockwaves across the world that will herald a new global economic slump. What is Greece doing to help itself? To be fair, Greece isn't standing idly by. It has already imposed hugely unpopular austerity measures against an explosive backdrop of public discontent. It is also taking drastic steps to ease its debt burden by selling off numerous assets. It is looking at an extensive privatization program that could see it unload prized assets including stakes in banks, railways, utility firms, ports and the postal service. There is also a plan to offload Hellenikon, Athens' former international airport. Other measures include floating Olympic and tourism property assets on the stock exchange and issuing gaming licenses. The target is to raise about $71 billion by 2015. Should Greece return to the drachma, its currency probably would suffer an immediate devaluation of as much as 75 percent against the euro, spurring widespread defaults on foreign loans, economists at UBS (UBS) say. If European leaders couldnt make a credible argument that Greece was an isolated case, depositors in other nations might decide to withdraw euros from banks or shift them to countries seen as safer. The more policy makers continue to openly discuss an exit, the more likely that people in Spain, Ireland, and Portugal pull money out of their local banks, says Andrew Stimpson, an analyst at Keefe, Bruyette & Woods (KBW) in London. Frances Socit Gnrale estimates