Thomas Newcombe-13810707

International Financial Economics

Finance and Investment

Assignment
Currency Crisis Report: Greece
Country Profile
Greece is a country within the European Union (EU), joining in 1981. They also joined to Euro in
2001. In 2004 after joining the Euro, Greece admitted their deficit had not been below 3% since
1999, which EU rules require.
In 2005 the Olympics held in Greece caused the Greek government to take measures of austerity by
imposing a new austerity budget. This was to cut the deficit and to boost public finances to get them
back to normal.
In 2006 the austerity measure was starting to work and GDP rose by 4.1%.
In 2009 the financial crisis began and increased Greeces national debt to 262bn from 168bn in
2004. The deficit is also announced to be 12.7% of GDP, which is over double of the last published
figure.
In April 2010, Greece officially requested a bailout.
The crisis in Greece is ongoing and the country still has a large amount of sovereign debt. The figures
below show various aspects of the Greek economy throughout the crisis.
GDP Rate by Year
2008: -0.2

2009: -3.1

2010: -4.9

2011: -7.1

2012: -7.0

2013: -3.9

These figures show that by year GDP fell from 2008 to 2011, when it started to improve again.
Unemployment Rate by Quarter
2009: Q1:8.0 Q2:9.5 Q3:9.0 Q4:9.2 2010: Q1:11.7 Q2:11.8 Q3:12.4 Q4:14.2 2011: Q1:15.9 Q2:16.3
Q3:17.7 Q4:20.7 2012: Q1:22.6 Q2:23.6 Q3:24.8 Q4:26.0 2013: Q1:27.4 Q2:27.1 Q3:27.0 Q4:27.5
These figures show that unemployment has risen from 2009 onwards to an extremely high figure.
Deficit as a Percentage of GDP
2008: -9.8

2009: -15.7

2010: -10.9

2011: -9.6

2012: -8.9

2013: -12.7

2011: 170.3

2012: 157.2

2013: 175.1

Government Debt as a Percentage of GDP

2008: 112.9

2009: 129.7

2010: 148.3

The deficit and debt figures show the crisis that Greece has in terms of sovereign debt.

Causes of Crisis
A cause that should be highlighted is the debt brought about from the Olympics being held in Greece
in 2004. The aftermath of this was a large amount of government debt which meant that austerity
measures had to be taken. This could have been the start of the crisis.

Brighton Business School- University Of Brighton

Thomas Newcombe-13810707

International Financial Economics

Finance and Investment

A second cause put forward by Kouretas and Vlamis (2010) is that the sovereign debt crisis occurred
as fear had caused lending to stop. This meant that the Greek government was unable to repay its
capital and interest. However, Carlin (2014) highlights that Greece already had a large deficit and
large debt before the financial crisis, and that it was worsened by the crisis, largely by the German
bank failure and recession, which had implications throughout the EU.

Consequences
The first stability program announced by Greece to cut the deficit led to the Greek public being given
lower bonuses and higher taxes as well as a pension freeze. The crisis caused a nationwide strike on
the 5th of May 2010. Demonstrations within two large cities turned violent and caused the death of
three people. Another consequence for the Greek public was the pension reform, which cut
benefits, stopped early retirement and changed womens retirement age from 60 to 65. A second
law passed after this set a cap on monthly wage for public companies and imposed salary cuts. This
led to a Greek movement starting daily protests. A new austerity package which was heavily
protested against made new taxes and more wage cuts. The prime minister of Greece resigned in
2011. There were also protests throughout 2012, many of which were violent. In 2013 it was
announced that there would be 15,000 state jobs cut by the end of next year, and 4,000 in 2013.
These consequences paint a picture of large numbers of unemployment and reduced salaries, and
higher taxes causing less household income. Throughout this period GDP was also very low and
Greece fell into recession from quarter 2 in 2008 until quarter 1 in 2009 and from quarter 3 2009
until quarter 1 2011.

Cures
The Greek government, EU, and IMF took many actions to stop the crisis, however many of these
were unsuccessful. The first cure was the stability program announced in 2010 to cut the deficit to
2.8% of GDP by 2012. EU finance ministers also approved a 30bn aid package which was refused by
Greece. The main bailout package agreed by the IMF and EU was a rescue package of 110bn over
three years. After this Greece received 14.5bn from the EU, which they used to repay their
immediate debt. This package set requirements such as pension reform, which were put into place
by Greece.
It soon became clear that the initial bailout package was not enough, and a second bailout of 130bn
was agreed in 2012. Alongside this, most of Greeces private sector creditors made the agreement to
write off around three quarters of the debt owed, and also agreed to change existing loans to new
ones with a lower rate of interest. A further agreement led to another 40bn being written off.
There is speculation that this still may not be enough and a further bailout may be required.

Evaluation
In conclusion the crisis in Greece has been one of the worst within the Eurozone crisis, with Greece
reaching extremely high numbers of debt. As Greece uses the Euro, depreciation is not possible.
Kouretas and Vlamis (2010) talk about Greeces exit from the EU and believe that this will cause
many problems especially for other European countries with holdings within Greece. The Greek exit
option has been highlighted more recently also and is looking more and more like the most viable
option for the EU. Grahl (2011) highlights that Greece cannot start to rebuild until it meets the
budget targets set by the IMF and EU, which the prime minister of Greece insists they can now do.
However the crisis in Greece is ongoing and they still have large amounts of debt. The methods put
into place so far have been largely unsuccessful. However latest figures are starting to show a fall in

Brighton Business School- University Of Brighton

Thomas Newcombe-13810707

International Financial Economics

Finance and Investment

unemployment and a rise in GDP, which could be the start of the restoration of Greece, even though
figures are still extremely high.

References
Carlin, W. (2012). 10 Questions about the Eurozone crisis and whether it can be solved. European
Institute, UCL
Grahl, J. (2011). Crisis in the Eurozone. Soundings, 48, 8, 143-158
Koretas, G. Vlamis, P (2010) The Greek Crisis: Causes and Implications, Panoeconomicus, 57, 4, 391404
Crisis Observatory (2013) Database/ basic macroeconomic data, [online],
<http://crisisobs.gr/en/database/?ct=94> [accessed 9/2/15]
Eurostat (2015) database [online] <http://ec.europa.eu/eurostat/data/browse-statistics-by-theme>
[Accessed 9/2/15]
Hellenic Statistical Authority (2014) main page [online]
<http://www.statistics.gr/portal/page/portal/ESYE> [accessed 9/2/15]
BBC News (2012) Eurozone crisis explained, BBC news, 27/11/12, [online]
<http://www.bbc.co.uk/news/business-13798000> [accessed 9/2/15]
Bloomberg Business (2015) European debt crisis [online]
<http://www.bloomberg.com/markets/european-debt-crisis/> [accessed 9/2/15]
Word Count: 1015

Brighton Business School- University Of Brighton