European Sovereign-Debt Crisis

The sovereign debt crisis in Greece has attained several controversial bailouts which has caused a huge fuss to the Greek citizens and the tension of political instability in negotiation in the Eurozone. This literature review tends to answer 3 main questions as follows: (1) the causes of sovereign debt crisis in Greece, (2) the implication of the crisis currently and (3) the ways of mitigating the

As of 2014, Greece -along with other nations of the Eurozone- is facing grave sovereign debt issues, which have helped worsen the economic and political aspects of the nation. Some members, like the case of Ireland, Portugal, Spain and the aforementioned Hellenic nation, have unendurable levels of public debt, and have been receiving aid packages from the European Union and International Monetary Fund to avoid default. However, despite these financial aids, the nation still presents economic complications that threaten to affect the country 's payments to its international commitment. Similarly, such loans and other measures taken in order to control the crisis (budget and job cuts, among others, which will be later explained) have provoked violent riots and strikes, leaving the nation in a constant state of unrest.

Greece government’s debt has been around since 2010. The countries surrounding Greece are now worried that it may affect them. The economy in Greece started getting worse after United Stated had its crisis in 2007. Since Greece entered the Eurozone changes in the economy, financial stability, and employment had caused Greece to go into more debt, but it could have been avoided if Greece would have not entered the Eurozone.

As of 2014, Greece -along with other nations of the Eurozone- is facing grave sovereign debt issues, which have helped worsen the economic and political aspects of the nation. Some members, like the case of Ireland, Portugal, Spain and the aforementioned Hellenic nation, have unendurable levels of public debt, and have been receiving aid packages from the European Union and International Monetary Fund to avoid default. However, despite these financial aids, the nation still presents economic complications that threaten to affect the country 's payments to its international commitment. Similarly, such loans and other measures taken in order to control the crisis (budget and job cuts, among others, which will be later explained) have provoked violent riots and strikes, leaving the nation in a constant state of unrest.

This paper will provide a brief history of Greece and reviews the modern day problems that may force Greece out of the Eurozone. Indeed, history is being made on a daily basis as the prospect of a Greek exit would steer both the nation and the Eurozone into uncharted territory. This is a cautionary

Excessive government debts were the cause of the Euro crisis due to countries ‘living beyond their means’ according to the Germany’s ministry of finance. These increased debt levels were largely caused by huge bailout packages provided to the financial sector during the 2009 financial crisis and the global economic slowdown thereafter. The average public deficit in the Eurozone was only 0.7 percent of GDP in 2007 but by 2010, it had jumped to over 6 percent. The Eurozone’s public debt also rose from 66 to 85 percent of GDP in 2010.

The Greece debt problem arose in the year 2009. It is considered as the first sovereign debt problem that has ever arisen in the Eurozone. The main contributing factors to this problem included the weak Greece economy, the long period of Recession and the crisis in confidence among its governmental leaders. Later that year the country was believed to be in a situation where it was not able to meet its debt obligations. This was after the country announced that it had been understating its deficit figures for many years. This action saw Greece shut out from borrowing any funds in the financial market. This forced the International Monetary Fund, the European Commission and the European Central Bank to be able to issue the first and second bailouts in Greece. Greece, however, failed to be able to repay back their debts due to many social, political and economic factors that surrounded the country. The country was once again in a state of bankruptcy. The Eurozone had to be able to intervene to be able to help the country and on July 13, 2015, the country was issued the third bailout but on very strict and precise conditions.

Since the 1990s, the Greek economy has been suffering from a deficit in its accounts due to years of funds mismanagement and poor fiscal policies. However, the task of dealing with the issue was passed on from one executive to the next, hence exacerbating the problem.

The purpose of this paper is to provide an analysis of the Greek sovereign debt crisis that we witness during 2010-2014, its global impact and sustainability by examining GDP and the real interest rate. This paper will also examine that several members of the European Union such as Portugal, Italy, Ireland, Spain by comparing with Greece. These countries historically known as PIIGS with Greece. Also, this paper will analyze Argentina crisis by comparing with Greece crisis.

In 2008 Greece was not influenced by the crisis but later in 2009 the country fell into recession and the financial markets exerted pressure, which made the economy being vulnerable. At the beginning of the sovereign debt crisis, the budget deficit of Greece was erected at 13.6% from 12.7% (Eurostat, Euroindicators, 22/2010, 22 April 2010) and the external debt at 127% of the GDP (Eurostat, Euroindicators, 60/2011, 26 April 2011). In order to to deter a default on its sovereign debts, the government of Greece agreed on a loan by Eurozone states and the International Monetary Fund (IMF). The loan agreement was 80 billion € from Eurozone states and 30 billion € from IMF. The agreement was between the Greek government and the European Commission (EC), the European Central Bank (ECB) and IMF (the ‘Troika’), in which they agreed that the EC, ECB and IMF had to prepare a program for Greek economy. The Ministry of Finance in cooperation with the ‘Troika’ prepared a program called ‘Memorandum of economic Policy and Financial Policies; (MEFP) and the ‘Memorandum on Specific Economic Policy Conditionality’ (MSEPC)(The Memoranda). The MEFP had to do with the fiscal reformations and income policies that Greece had to undertake. The Memoranda was connected with the Act 3845/2010 on ‘Measures for the Implementation of the support mechanism for the Greek economy by the Eurozone Member states and the International Monetary Fund’ and the Greek Parliament enacted into law on 5 May 2010. The

The IMF and EU have loaned vast sums to the Greek government, aiding in an economic recovery for the nation. These institutions, along with the European Central Bank (ECB) and many other creditors within the EU have set out fiscal and monetary guidelines that will see the loans be of most use to the economy. Through poorly regulated finances, Greece was facing government bankruptcy prior to the 2010 bailout. These funds have not only saved the government, but an entire nation. As of the 27th of April 2015, Greek public debt stood at 320.4 billion euros (€), with a debt-to-GDP ratio of 180.2 percent. Although this figure is astoundingly large, the policies put in place by creditor institutions mean the debt is manageable, and will be reduced significantly over a period of years. Austerity measures

According to the analysis above, the euro crisis could be partly ascribed to previous financial crisis in 2008. After deeply investigation, the failure could have a lot of thing to do with government regulation and management. The reasons for European sovereign debt crisis could categorized into two main issue; income and solvency problem as analyze above. Hence, this part will examine the failure of both private and public sectors from the angle of accounting.

Background on Greece’s Debt Crisis “You cannot spend more than (what) you earn…you should not borrow more than (what) you can afford.” This, according to an editorial published by the Greek newspaper Kathimerini, may be the lesson Greeks are now learning the hard way.1 Unrestrained spending of successive Greek governments over a long period may have driven the country’s budget and current account deficits.2 Greece borrowed heavily from international capital markets to finance public sector jobs, pensions and other social benefits.3 As deficits and the country’s debt burden grew, the governments just kept on borrowing. 4 When Greece joined the eurozone in 2001, it gained monetary stability and was able to borrow at lower interest rates –

With the collapse of the Wall street financial market in 2008, Greece become the center of Europe’s economic crisis. With employment rates more than 25 percent, Greece is suffering from a financial crisis equivalent to if not greater than the U.S. Great Depression. The source of the crisis originated in the inefficient management of the Greece’s economy and government finances. Additionally, Greece’s involvement in the euro zone reflected a monetary policy that was at odds with its fiscal policy. The crisis resulted in troika providing emergency funds to pay off Greece international loans.

Hence, the purpose of this case analysis is to review the debt crisis in Greece and recommend alternative solutions to it. Also, this case analysis will provide an overall background of Greece, along with the origins of the crisis, and what steered the extent of it up to this period in time. Lastly, each alternative solution will be reviewed and evaluated to determine which is the best alternative solution.