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Greece's Debt Crisis
Transcript of Greece's Debt Crisis
its debt; however, it would be better for the rest of the world if Greece continued making budget cuts and enforcing austerity measures. In a compromise between these two sides, Greece should renegotiate the terms of its debt. Should Greece default on its debt or continue with the terms of the bailout? Reasons to Not Comply With Bailout
and Default on Debt Reasons to Continue with Bailout and
Not Default on Debt What do the political parties of Greece think? Reasons to Renegotiate Greece has a history of spending recklessly. Massive tax evasion, plus the global economic downturn, has lowered the amount of revenue that Greece is making. As a result, Greece is in massive debt. Debt In 2010, it was found that Greece had a budget deficit of 13.6%, instead of
the previously believed 3.7%. In addition, its national debt was 113% of its GDP. The European Union (EU) was created in 1951 as the European Economic Community. There were only six countries in it. It has since grown to 27. The countries in white are current members of the EU. The 27 member countries all participate in a single market--allowing both goods and people to move freely through the countries without tax or fees. The EU fosters free-trade. 17 out of 27 of these countries use a single currency called the Euro. These 17 countries are what's called "the Eurozone." The Euro was originally meant to be used for the entire EU, but some countries decided against it while others aren't economically stable enough to use it. The purposes of the Euro were to decrease inflation, eliminate exchange rates, and offer convenience to travelers. The Euro was physically launched in 2002. Euro Notes Euro Coins Greece Greece joined the EU in 1981 and the Eurozone in 2001. Later, in 2004, Greece admitted lying about its budget deficit--saying it was only 3%--in order to join the Eurozone. Greece's government was first bailed out in May 2010. This bailout was for 110 billion euros. In July of 2011, Greece got its second bailout--this one of 109 billion euros. Right away, it was clear that Greece was not going to be able to pay the loans back in full. Banks and other lenders accepted a 21% haircut--meaning that they would allow Greece to pay back 21% less than they actually owe. Soon after, it was admitted that Greece would have a hard time paying even that back. Banks even agreed to take 50% haircuts. In March of 2012, a third bailout was enacted. This one involved the privately held bonds from the previous bailout being switched with ones worth much less and with a lower interest rates. Under the terms of this, investors took a 74% loss--much more than the previously discussed 50%. Default If Greece is unable to pay back its bailouts, it defaults. This means that it breaks the terms of its bailout. If Greece were to default on its debt, it would leave the Euro and go back to using the Drachma--its former currency. No other country has left the Euro before. Throughout all of this, George Papandreou--Greece's president--was losing popularity. In November 2011, he decided to resign and form a transitional government until elections could be held. A temporary coalition government headed by President Karolos Papoulias was formed. Karolos Papoulias On May 6, 2012, the election was held for the new government. Not one political party won a majority. A new election will be held on June 17, 2012. As part of the bailouts given by the Eurozone, Greece has been forced to make severe budget cuts and enact austerity measures in order to reduce their debt. Greece has lowered the minimum wage, cut public-sector jobs, reduced pensions, increased taxes, and cut social security. Many people object to these efforts. In February of 2012, after the government passed a particularly unpopular austerity bill, riots broke out. Other protests have also turned violent. Austerity is increasing the suicide rate and lowering living conditions for those in Greece. Austerity measures and budget cuts hurt the economy and prevent recovery. Defaulting on debt means leaving the Euro and returning to the Drachma. In the long run, Greece's economy would benefit from having a competitive exchange rate between the two currencies. Using the Drachma would also make Greece's exports cheaper--stimulating its economy farther. Traveling to Greece would be cheaper. Tourism could increase. Immediate chaos in Greece. If Greece defaults, then bank accounts will get converted to Drachmas and will be greatly reduced in value. Businesses would go bankrupt. Imports would be outrageously expensive. The banks and governments that put money in Greece, and expected to get it back with interest, will lose a lot of money if Greece defaults. Some banks may collapse. Greece is the most extreme debt crisis. If it defaults, nobody is going to loan to countries such as Italy and Spain--which both have much larger economies and need the money. They would both default, causing a banking crisis and recession. With an election coming up, these viewpoints are especially important. On June 17, Greeks will indirectly be voting for whether or not they will default or not. These five parties will together receive the majority of the vote. New Democracy SYRIZA PASOK KKE Golden Dawn The scariest of all the parties, Golden Dawn draws many comparisons to the nazi party. It is extremely anti-immigrant and opposes the bailout completely--believing that Greece should default on its debt. The KKE is a communist party. It believes that Greece should leave the entire EU, and not just the Eurozone. SYRIZA is a left-wing party. It supports membership of the EU, however it rejects austerity. It hopes to renegotiate the terms of the bailout. Greece's center-right party has been ruling with PASOK since November of 2011. It has said that it is against the bailout; however, under its rule, Greece secured the March 2012 bailout. This is the party that had the most votes in the previous May election. The party of former president Papandreou, this center-left party calls itself socialist. Its support for the austerity measures have left many people wondering if that's true. The party was in rule when the bailout occurs, but has said that it opposes any further tax hikes. Current austerity measures are unfair to Greeks and delay recovery. Despite these two things, it is unfair to the rest of the world if Greece defaults. It would be better for Greece in the long term if it can gain its independence. What can come from renegotiation? Many economists argue that it isn't if Greece will default, but when. With haircuts of 76% on their bailout, one might ask what is there left to negotiate with. Greece's negotiation with the Eurozone should be focused on removing the austerity and revitalizing the economy. Only after the economy has stabilized should Greece be responsible for repaying its debt. Greece owes it to the Eurozone to not default. Defaulting would be selfish and would cause chaos. I believe that Greece can do well with the Euro as its currency. It just needs time--something that the Eurozone has not been giving. This plan--to renegotiate for a delay on the bailout-- requires cooperation from the Eurozone. It's hard to predict what they will do; however, they have already shown--through hair cuts--that they are willing to accommodate Greece. The Eurozone cannot afford to have Greece default and they have shown that they would do anything to avoid it. Greece would still be paying the Eurozone under the terms of this negotiation, it would just be late. Greece should be given as long as it needs to balance out its budget on its own before it becomes responsible for its international debt. What's going on now--forcing Greece to deal with its international issues before its domestic issues--isn't working. Greece has dug itself into quite a hole. Problems are never solved by quitting and leaving the Eurozone would hurt the rest of the world. Greece has hurt its citizens in the name of not quitting. The best thing for Greece to do is to recover and revitalize its own economy, and then settle its debt with the Eurozone. The End