REPORT ON

“GREEK GOVERNMENT DEBT CRISIS”

OF

“SECURITY ANALYSIS AND INVESTMENT

MANAGEMENT”

Submitted in partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

to

Guru Gobind Singh Indraprastha University, Delhi

Under the Guidance of Submitted by

Prof. Hardeepika Singh Vicky Khanna (074)

Mishika Nagpal (303)

Sugandh Agarwal (013)

Shikher Saini (072)

MBA – IIIrd Semester

Session 2014-2016

GREEK GOVERNMENT-DEBT CRISIS 

The Greek government-debt crisis (also known as the Greek depression) started in late

2009. It was the first of five sovereign debt crises in the Eurozone – later referred to

collectively as the European debt crisis. In Greece, triggers included the turmoil of the Great

Recession, structural weaknesses in the Greek economy, and a sudden crisis in confidence

among lenders.

In late 2009, fears developed about Greece's ability to meet its debt obligations, due to

revelations that previous data on government debt levels and deficits had been misreported by

the Greek government. This led to a crisis of confidence, indicated by a widening

of bond yield spreads and the cost of risk insurance on credit default swaps compared to the

other Eurozone countries – Germany in particular. In 2012, Greece's government had the

largest sovereign debt default in history. On June 30, 2015, Greece became the

first developed country to fail to make an IMF loan repayment. At that time, Greece's

government had debts of €323bn.

OVERVIEW

The 1999 introduction of the euro as a common currency reduced trade costs among the

Eurozone countries, increasing overall trade volume. However, labor costs increased more in

peripheral countries such as Greece relative to core countries such as Germany, making

Greek exports less competitive. As a result, Greece saw its current account (trade) deficit rise

significantly.

A trade deficit means that a country is consuming more than it produces, which requires

borrowing from other countries. Both the Greek trade deficit and budget deficit rose from

below 5% of GDP in 1999 to peak around 15% of GDP in the 2008–2009 periods. Another

potential driver of the inflow of investment into Greece was its membership in the EU, which

helped lower the yields on its government bonds over the 1998–2007 periods. In other words,

Greece was perceived as a higher credit risk alone than it was as a member of the EU, which

implies investors felt the EU would bring discipline to its finances and support Greece in the

event of problems.

As the Great Recession that began in the U.S. in 2007–2009 spread to Europe, the flow of

funds from the European core countries to the periphery began to dry up. Reports in 2009 of

fiscal mismanagement and deception increased borrowing costs; the combination meant

Greece could no longer borrow to finance its trade and budget deficits.

A country facing a “sudden stop” in private investment and a high debt load typically allows

its currency to depreciate (i.e., inflation) to encourage investment and to pay back the debt in

cheaper currency, but this is not an option while Greece remains on the Euro. Instead, to

become more competitive, Greek wages fell nearly 20% from mid-2010 to 2014, a form of

deflation. This resulted in a significant reduction in income and GDP, resulting in a severe

recession and a significant rise in the debt-to-GDP ratio. Unemployment has risen to nearly

25%, from below 10% in 2003. However, significant government spending cuts have also

helped the Greek government return to a primary budget surplus, meaning it now collects

more revenue than it pays out, excluding interest.

MAIN POINT FOR GREECE CRISIS

Greece became the epicenter of Europe’s debt crisis after Wall Street imploded in 2008. With

global financial markets still reeling, Greece announced in October 2009 that it had been

understating its deficit figures for years, raising alarms about the soundness of Greek

finances.

Suddenly, Greece was shut out from borrowing in the financial markets. By the spring of

2010, it was veering toward bankruptcy, which threatened to set off a new financial crisis. To

avert calamity, the so-called troika — the International Monetary Fund, the European Central

Bank and the European Commission — issued the first of two international bailouts for

Greece, which would eventually total more than 240 billion euros, or about $264 billion at

today’s exchange rates.

The bailouts came with conditions. Lenders imposed harsh austerity terms, requiring deep

budget cuts and steep tax increases. They also required Greece to overhaul its economy by

streamlining the government, ending tax evasion and making Greece an easier place to do

business.

CAUSES

1. Government Summary Report

In January 2010, the Greek Ministry of Finance published the Stability and Growth Program

2010. The report listed these five main causes for eruption of the current government-debt

crisis:

GDP growth rates: After 2008, GDP growth rates were lower than the Greek national

statistical agency had anticipated. In the report, the Greek Ministry of Finance reported the

need to improve competitiveness by reducing salaries and bureaucracy and the need to

redirect much of its current governmental spending from non-growth sectors such as military

into growth-stimulating sectors.

Government deficit: Huge fiscal imbalances developed during the five years from 2004 to

2009: "the output increased in nominal terms by 40%, while central government primary

expenditures increased by 87% against an increase of only 31% in tax revenues." In the

report the Greek Ministry of Finance stated their aim to restore the fiscal balance of the

public budget. They intended to implement permanent real expenditure cuts (meaning

expenditures would only be allowed to grow 3.8% from 2009 to 2013, which was below the

expected inflation at 6.9%). Overall revenues were expected to grow 31.5% from 2009 to

2013, secured not only by new, higher taxes but also by a major reform of the ineffective tax

collection system.

Government debt-level: Mainly deteriorated in 2009 due to the higher than expected

government deficit and high debt-service costs. An urgent fiscal consolidation plan was

needed to ensure that the deficit would decline to a level compatible with a declining debt-to-

GDP ratio. The Greek government assessed that it was not enough to implement structural

economic reforms, as the debt would still increase to an unsustainable level before the

positive results of such reforms could be achieved. On this basis the government's report

emphasized that in addition to implementing the needed structural economic reforms, there

was an urgent need in the coming four-year period to implement packages of both permanent

and temporary austerity measures (with a size relative to GDP of 4.0% in 2010, 3.1% in

2011, 2.8% in 2012 and 0.8% in 2013). Implementation of this entire package of structural

reforms and austerity measures, in combination with an expected return of positive economic

growth in 2011, would then result in the baseline deficit being forecast to decrease from

€30.6 billion in 2009 to only €5.7 billion in 2013, while the debt-level relative to GDP would

stabilize at 120% in 2010–2011 and begin declining again in 2012 and 2013.

Budget compliance: Budget compliance was acknowledged to be in strong need of

improvement, and for 2009 it was even found to be "a lot worse than normal, due to

economic control being more lax in a year with political elections". In order to improve the

level of budget compliance for upcoming years, the Greek government wanted to implement

a new reform to strengthen the monitoring system in 2010, making it possible to keep better

track on the future developments of revenues and expenses, both at the governmental and

local level.

Statistical credibility: Problems with unreliable data had existed ever since Greece applied

for membership of the Euro in 1999. In the five years from 2005 to 2009, Eurostat each year

noted a reservation about the fiscal statistics for Greece, and too often previously reported

figures got revised to a somewhat worse figure, after a couple of years. The flawed statistics

made it impossible to predict accurate numbers for GDP growth, budget deficit and the public

debt. By the end of the year, all turned out to be worse than originally anticipated. Problems

with statistical credibility were also evident in several other countries, but in the case of

Greece, the magnitude of the 2009 revisions and its connection to the crisis added pressure to

the need for immediate improvement.

In 2010, the Greek Ministry of Finance reported the need to restore trust among financial

investors, and to correct previous statistical methodological issues, "by making the National

Statistics Service an independent legal entity and phasing in, during the first quarter of 2010,

all the necessary checks and balances that will improve the accuracy and reporting of fiscal

statistics".

2. Government Spending

The Greek economy was one of the fastest growing in the Eurozone from 2000 to 2007:

during this period it grew at an annual rate of 4.2%, as foreign capital flooded into the

country newly backed by the euro. This capital inflow coincided with a higher budget deficit.

Greece had budget surpluses from 1960–73, but since then it has had budget deficits. In

1974–80 the government had budget deficits below 3% of GDP, and in 1981–2013 deficits

were above 3% of GDP. According to an editorial published by the Greek conservative

newspaper Kathimerini, after the removal of the right-wing military junta in 1974, Greek

governments wanted to bring disenfranchised left-leaning portions of the population into the

economic mainstream and so ran large deficits to finance enormous military expenditure,

public sector jobs, pensions and other social benefits.

Greece is, as a percentage of GDP, the second-biggest defense spender in NATO, the highest

being the United States, according to NATO statistics. The US is the major supplier of Greek

arms, with the Americans supplying 42 per cent of its arms, Germany supplying 22.7 per

cent, and France 12.5 per cent of Greece's arms purchases.

The long period of budget deficits caused a situation where, from 1993, the debt-to-GDP ratio

was always above 94%. In the turmoil of the global financial crisis, the situation became

unsustainable (causing the capital markets to freeze in April 2010), as the downturn had

caused the debt level to grow rapidly above the maximum sustainable level for Greece

(defined by IMF economists to be 120%). According to "The Economic Adjustment

Programme for Greece" published by the EU Commission in October 2011, the debt level

was even expected to worsen into a highly unsustainable level of 198% in 2012, if the

proposed debt restructure agreement was not implemented.

Prior to the introduction of the euro, currency devaluation helped to finance Greek

government borrowing. After the euro's introduction in January 2001, the devaluation tool

disappeared. Throughout the next 8 years, Greece was able to continue its high level of

borrowing because of the lower interest rates that government bonds in euros could

command, in combination with a long series of strong GDP growth rates. Problems started to

occur when the global financial crisis peaked, with negative repercussions hitting all national

economies in September 2008. The global financial crisis had a particularly large negative

impact on GDP growth rates in Greece. Two of the country's largest earners, tourism and

shipping were badly affected by the downturn, with revenues falling 15% in 2009.

3. Current Account Balance

Economist Paul Krugman wrote in February 2012: "What we’re basically looking at...is a

balance of payments problem, in which capital flooded south after the creation of the euro,

leading to overvaluation in southern Europe." He continued in June 2015: "In truth, this has

never been a fiscal crisis at its root; it has always been a balance of payments crisis that

manifests itself in part in budget problems, which have then been pushed onto the center of

the stage by ideology."

The translation of trade deficits to budget deficits works through sectoral balances. Greece

ran current account (trade) deficits averaging 9.1% GDP from 2000–2011. By definition, a

trade deficit requires capital inflow (mainly borrowing) to fund; this is referred to as a capital

surplus or foreign financial surplus. This can drive higher levels of government budget

deficits, if the private sector maintains relatively even amounts of savings and investment, as

the three financial sectors (foreign, government, and private) by definition must balance to

zero.

Greece's large budget deficit was funded by running a large foreign financial surplus. As the

inflow of money stopped during the crisis, reducing the foreign financial surplus, Greece was

forced to reduce its budget deficit substantially. Countries facing such a sudden reversal in

capital flows typically devalue their currencies to resume the inflow of capital; however,

Greece was unable to do this, and so has instead suffered significant income (GDP)

reduction, another form of devaluation.

4. Tax Evasion

Another persistent problem Greece has suffered in recent decades is the government's tax

income. Each year it has been below the expected level. In 2010, the estimated tax evasion

costs for the Greek government amounted to well over $20 billion. The latest figures from

2013 also show that the State only collected less than half of the revenues due in 2012, with

the remaining tax owing being accepted to be paid by a delayed payment schedule.

As of 2012, tax evasion was widespread, and according to Transparency International's

Corruption Perception Index, Greece, with a score of 36/100, ranked as the most corrupt

country in the EU. One of the conditions of the bailout was implementation of an anti-

corruption strategy. The Greek government agreed to combat corruption, and the corruption

perception level improved to a score of 43/100 in 2014, which was still the lowest in the EU,

but now on par with Italy, Bulgaria and Romania. It is estimated that the amount of tax

evasion by Greeks stored in Swiss banks is around 80 billion Euros and a tax treaty to address

this issue is in negotiation between the Greek and Swiss government.

Data for 2012 places the Greek "black economy" at 24.3% of GDP, compared with 28.6% for

Estonia, 26.5% for Latvia, 21.6% for Italy, 17.1% for Belgium and 13.5% for Germany

(which partly correlates with the high percentage of Greeks who are self-employed i.e.,

31.9% in Greece vs. 15% EU average, – several studies have shown a clear correlation

between tax evasion and self-employment.

5. Misreported Debt Statistics

In early 2010, economy commissioner Olli Rehn denied that other countries would need a

bailout. He said, "Greece has had particularly precarious debt dynamics and Greece is the

only member state that cheated with its statistics for years and years." It was revealed that

Goldman Sachs and other banks had helped the Greek government to hide its debts. Other

sources said that similar agreements were concluded in "Greece, Italy, and possibly

elsewhere".

The deal with Greece was "extremely profitable" for Goldman. Christoforos Sardelis, former

head of Greece’s Public Debt Management Agency, said that the country did not understand

what it was buying. He also said he learned that "other EU countries such as Italy" had made

similar deals. This led to speculation as to which other countries had made similar deals.

According to Der Spiegel credits given to European governments were disguised as "swaps"

and consequently were not registered as debt because Eurostat at the time ignored statistics

involving financial derivatives. A German derivatives dealer commented to Der Spiegel that

"The Maastricht rules can be circumvented quite legally through swaps," and "In previous

years, Italy used a similar trick to mask its true debt with the help of a different US bank."

These conditions had enabled Greek as well as many other European governments to spend

beyond their means, while meeting the deficit targets of the European Union. In May 2010,

the Greek government deficit was again revised and estimated to be 13.6% which was the

second highest in the world relative to GDP with Iceland in first place at 15.7% and Great

Britain third with 12.6%. Public debt was forecast, according to some estimates, to hit 120%

of GDP during 2010. The actual government debt to GDP ratio was closer to 150%.

To keep within the monetary union guidelines, the government of Greece had also for many

years misreported the country's official economic statistics. At the beginning of 2010, it was

discovered that Greece had paid Goldman Sachs and other banks hundreds of millions of

dollars in fees since 2001, for arranging transactions that hid the actual level of borrowing.

Most notable is a cross currency swap, where billions worth of Greek debts and loans were

converted into yen and dollars at a fictitious exchange rate by Goldman Sachs, thus hiding the

true extent of Greek loans.

The purpose of these deals made by several successive Greek governments, was to enable

them to continue spending, while hiding the actual deficit from the EU, which, at the time,

was a common practice amongst many European governments. The revised statistics revealed

that Greece at all years from 2000 to 2010 had exceeded the Eurozone stability criteria, with

the yearly deficits exceeding the recommended maximum limit at 3.0% of GDP, and with the

debt level significantly above the recommended limit of 60% of GDP.

6. Debt Levels Revealed (2010)

The European statistics agency, Eurostat, had at regular intervals ever since 2004, sent 10

delegations to Athens with a view to improving the reliability of statistical figures related to

the Greek national account, but apparently to no avail. In January 2010, it issued a damning

report which contained accusations of falsified data and political interference.

In February 2010, the new government of George Papandreou (elected in October 2009)

admitted a flawed statistical procedure previously had existed, before the new government

had been elected, and revised the 2009 deficit from a previously estimated 6%–8% to an

alarming 12.7% of GDP. In April 2010, the reported 2009 deficit was further increased to

13.6% and the final revised calculation, using Eurostat's standardized method, set it at 15.7%

of GDP; the highest deficit for any EU country in 2009.

The figure for Greek government debt at the end of 2009 was also increased from its first

November estimate at €269.3 billion (113% of GDP) to a revised €299.7 billion (130% of

GDP). The need for a major and sudden upward revision of both the deficit and debt level for

2009, only being realized at a very late point, arose due to Greek authorities previously

having published flawed estimates and statistics in 2009. To sort out all Greek statistical

issues once and for all, Eurostat then decided to perform their own in depth Financial Audit

of the fiscal years 2006–09. After having conducted the financial audit, Eurostat noted in

November 2010 that all "methodological issues" now had been fixed, and that the new

revised figures for 2006–2009 finally were considered to be reliable.

Despite the crisis, the Greek government's bond auction in January 2010 had the offered

amount of €8 bn 5-year bonds over-subscribed by four times. At the next auction in March,

the Financial Times again reported: "Athens sold €5bn in 10-year bonds and received orders

for three times that amount". The continued successful auction and sale of bonds was,

however, only possible at the cost of increased yields, which in return caused a further

worsening of the Greek public deficit. As a result, the rating agencies downgraded the Greek

economy to junk status in late April 2010. This led to a freeze of the private capital market,

requiring the Greek financial needs to be covered by international bailout loans to avoid a

sovereign default. In April 2010, it was estimated that up to 70% of Greek government bonds

were held by foreign investors, primarily banks. The subsequent bailout loans paid to Greece

were mainly used to pay for the maturing bonds, but also to finance the continued yearly

budget deficits.

EFFECTS OF THE CRISIS

Economic effects

Greek GDP suffered its worst decline in 2011 when it clocked growth of −6.9%; a year where the seasonal adjusted industrial output ended 28.4% lower than in 2005, during that year, 111,000 Greek companies went bankrupt (27% higher than in 2010). As a result, the seasonally adjusted unemployment rate also grew from 7.5% in September 2008 to a then record high of 23.1% in May 2012, while the youth unemployment rate during the same time rose from 22.0% to 54.9%.On 17 October 2011, Minister of Finance Evangelos Venizelos announced that the government would establish a new fund, aimed at helping those who were hit the hardest from the government's austerity measures. The money for this agency would come from a crackdown on tax evasion.

Key statistics are summarized below, with a detailed table at the bottom of the article. According to the CIA World Factbook and Eurostat:

Greek GDP fell from €242 billion in 2008 to €179 billion in 2014, a 26% decline overall. Greece was in recession for over five years, emerging in 2014 by some measures.

GDP per capita fell from a peak of €22,500 in 2007 to €17,000 in 2014, a 24% decline. The public debt to GDP ratio in 2014 was 177% GDP or €317 billion. This ratio was the

third highest in the world after Japan and Zimbabwe. The public debt peaked at €356 billion in 2011; it was reduced by a bailout program to €305 billion in 2012 and has risen slightly since then.

The annual budget deficit (expenses over revenues) was 3.4% GDP in 2014, much improved versus the 15% GDP of 2009. Greece has achieved a primary budget surplus,

meaning it had more revenue than expenses excluding interest payments in 2013 and 2014.

Revenues for 2014 were €86 billion (about 48% GDP), while expenditures were €89.5 billion (about 50% GDP).

Interest rates on Greek long-term debt rose from around 6% in 2014 to 10% in 2015. Based on a debt of €317 billion, the 6% rate represents annual interest payments of roughly €20 billion, nearly 23% of government revenues. For scale, U.S. interest is roughly 8% of revenues. Interest rates on German bonds were under 1% in 2015.

The unemployment rate has risen considerably, from below 10% (2005–2009) to around 25% (2014–2015).

An estimated 44% of Greeks lived below the poverty line in 2014.

Greece defaulted on a $1.7 billion IMF payment on June 29, 2015. Greece had requested a two-year bailout from its lenders for roughly $30 billion, its third in six years, but did not receive it.

The IMF reported on July 2, 2015, that the "debt dynamics" of Greece were "unsustainable" due to its already high debt level and "...significant changes in policies since [2014]—not least, lower primary surpluses and a weak reform effort that will weigh on growth and privatizations—[which] are leading to substantial new financing needs." The report also stated that debt reduction (haircuts, in which creditors sustain losses through debt principal reduction) would be required if the package of reforms under consideration were weakened further.

Social effects

In February 2012, it was reported that 20,000 Greeks had been made homeless during the preceding year, and that 20 per cent of shops in the historic city centre of Athens were empty. The same month, Poul Thomsen, a Danish IMF official overseeing the Greek austerity programme, warned that ordinary Greeks were at the "limit" of their toleration of austerity, and he called for more international recognition of "the fact that Greece has already done a lot [in terms of reforms], at a great cost to the population" and moreover cautioned that although further spending cuts were certainly still needed, they should not be implemented rapidly, as it was crucial first to give some more time for the implemented economic reforms to start to work.

By 2015, unemployment in Greece had reached 26% and it was reported by the Organisation for Economic Co-operation and Development that nearly twenty-percent of Greeks lacked sufficient funds to meet daily food expenses. As the economy has contracted and the welfare state has declined, traditionally strong Greek families have come under increasing strain, often unable to bear the burden of increasing numbers of unemployed and often homeless relatives. Many unemployed Greeks are cycle between friends and family members until they run out of options and end up in homeless shelters. In contrast to the traditional perception of homeless shelter residents in Greece, these new homeless have extensive work histories and are largely free of mental health and substance abuse concerns.

The Greek national government has not been able to commit the necessary resources to combat the homelessness problem, due in part to austerity measures. A program was launched to provide a stipend to assist homeless to return to their homes, but many enrollees never received their grants. Various attempts have been made by local governments and non-governmental agencies to alleviate the problem. The non-profit street newspaper Shedia, Raft is sold by street vendors in Athens who are allowed to keep half the €3.50 cover price for each issue sold. The number of homeless seeking to sell the paper has risen so high that the publication now requires a formal application where once there was none. The municipality of Athens has started its own shelters, the first of which was called the Hotel Ionis. In 2015, he Venetis bakeery chain in Athens was giving away ten thousand loaves of bread a day, one-third of its total production. In some of the poorest neighborhoods, according to the chain's general manager, there were disturbances among the large numbers of hungry people queueing up to receive bread, and went on to say “In the third round of austerity measures, which is beginning now, it is certain that in Greece there will be no consumers — there will be only beggars."

First quarter 2015 average; *Britain is the three-month average through February.

Others say that’s too simplistic a view. Despite the frustration of endless negotiations,

European political leaders see a united Europe as an imperative. At the same time, they still

haven’t fixed some of the biggest shortcomings of the eurozone’s structure by creating a

more federal-style system of transferring money as needed among members — the way the

United States does among its various states.

Exiting the euro currency union and the European Union would also involve a legal minefield

that no country has yet ventured to cross. There are also no provisions for departure,

voluntary or forced, from the euro currency union.

Global Financial System Effects

In the European Union, most real decision-making power, particularly on matters involving

politically delicate things like money and migrants, rests with 28 national governments, each

one beholden to its voters and taxpayers. This tension has grown only more acute since the

January 1999 introduction of the euro, which now binds 19 nations into a single currency

zone watched over by the European Central Bank but leaves budget and tax policy in the

hands of each country, an arrangement that some economists believe was doomed from the

start.

Since Greece’s debt crisis began in 2010, most international banks and foreign investors have

sold their Greek bonds and other holdings, so they are no longer vulnerable to what happens

in Greece. (Some private investors, who subsequently plowed back into Greek bonds, betting

on a comeback, regret that decision.) And in the meantime, the other crisis countries in the

Eurozone, like Portugal, Ireland and Spain, have taken steps to overhaul their economies

and are much less vulnerable to market contagion than they were a few years ago.

DEBT IN THE EUROPEAN UNION

Gross government debt as a percentage of gross domestic products plotted through the fourth

quarter of 2014.

GREECE’S CREDITORS

Initially, European banks had the largest holdings of Greek debt. However, this has shifted as

the "troika" (i.e., European Central Bank or ECB, International Monetary Fund or IMF, and a

European government-sponsored fund) have purchased Greek bonds. Almost two-thirds of

Greece’s debt, about 200 billion euros, is owed to the Eurozone bailout fund or other

Eurozone countries. Greece does not have to make any payments on that debt until 2023. The

International Monetary Fund has proposed extending the grace period until mid-century.

As of early 2015, the largest individual contributors to the fund were Germany, France and

Italy with roughly €130B total of the €323B debt. The IMF is owed €32B and the ECB €20B.

Foreign banks had little Greek debt.

Excluding Greek banks, European banks had €45.8bn exposure to Greece in June 2011, with

€9.4bn held by French and €7.9bn by German banks. However, by early 2015 their holdings

were minimal, roughly €2.4B.

AUSTERITY PACKAGES AND REFORMS

When the first three austerity packages had been negotiated and agreed upon from February

to May 2010, they featured a total fiscal tightening of €41 billion of which €28bn was related

to 2010–11 and the remaining €13bn scheduled for 2012–14. Because of a worse than

expected recession, this was however followed by a need for the government also to pass a

fourth austerity package in June 2011 and a Fifth austerity package in 2012. The two extra

packages increased the total amount of fiscal tightening for 2010–2014 to €65 billion (equal

to 31.9% of the 2012 Greek GDP), with the first €36bn in 2010–11 followed by €13bn in

2012 and €16bn in 2013–14.

In regards of the Fifth austerity package it only introduce a new tightening of €13.5bn for

2013–14, but in addition there is also a fiscal tightening of €2.5bn being implemented during

the years as leftover from the earlier packages, resulting in €16bn of tightening for 2013–14.

Creditors attributed the increased need for fiscal tightening to the Greek government's

inability or unwillingness to implement the needed economic structural reforms, while the

government viewed the recession as the result of the austerity measures.

First Austerity Package (February 2010)

The First austerity package was a minor austerity package in order to limit the deficit. This

event was preceded of the First Economic Adjustment Programme for Greece known as

memorandum. It emerged after the promise of the Greek prime minister in the World

Economic Forum of Davos, Switzerland. He promised that he take some measures so that the

deficit cut. The package was implemented on 9 February 2010 and was expected to save €0.8

billion; it included a freeze in the salaries of all government employees, a 10% cut in

bonuses, as well as cuts in overtime workers, public employees and work-related travels.

Second Austerity Package (March 2010)

The Second austerity package included further moves to increase government income,

decrease outgoings, and improve the economy. This event was preceded of the First

Economic Adjustment Programme for Greece known as memorandum. The package emerged

after the rapidly rise of Greek/German 10-year debt yield spread and the downgrading of

Greek economy by all nationally recognized statistical rating organizations. So, amid new

fears of bankruptcy, the Greek parliament passed the "Economy Protection Bill", which was

expected to save another €4.8 billion. The package was implement on 5 March 2015 and it

included 30% cuts in Christmas, Easter and leave of absence bonuses, a further 12% cut in

public bonuses, a 7% cut in the salaries of public and private employees, a rise of VAT from

4.5% to 5%, from 9% to 10% and from 19% to 21%, a rise of tax on petrol to 15%, a rise in

the (already existing) taxes on imported cars of up to 10%–30%, among others.

Third Austerity Package and Reforms (May 2010)

The Third austerity package came as a result of First Economic Adjustment Programme for

Greece known as memorandum that was announced by Greek prime minister on 23 April

2015 and was signed on 2 May 2015. Changes aimed at saving €38 billion through 2012,

representing the biggest government overhaul in a generation.

Actions included sale of 4000 government-owned companies, limits on "13th and 14th

month" salaries, a new rise of VAT from 5% to 5.5%, from 10% to 11% and from 21% to

23% and other cuts to public employee benefits, pension Reform and tax increases. It was

met with a nationwide general strike and massive protests the following day, during which

three people were killed, dozens injured, and 107 arrested.

Fourth Austerity Package and Reforms (June 2011)

The Fourth austerity package emerged from the deviation of the Greek economic program by

targets. It was voted by parliament on 29 June 2011, in the midst of the huge demonstrations

and the Greek indignants movement. It is known in Greece as Mesoprothesmo (the mid-term

plan). It includes rise taxes for those with a yearly income of over €8,000, an extra tax for

those with a yearly income of over €12,000 among others. On 11 August 2011 the

government introduced more taxes, this time targeted at people owning immovable property.

The new tax is to be paid through the owner's electricity bill.

Fifth Austerity Package (October 2011)

The Fifth austerity package was aimed to ensure the 6th bailout installment for Greece. The

representatives of creditors required Greece to take new measures in order to limit the state

expenditures. That was one of the conditions so that the financing of Greek economy to

continue normally. The new bill (frequently is called multi-bill) hit mostly the civil servants

and the retirees. It was voted by the Greek parliament on 20 October 2011 amid protests. The

bill included among other, major cuts of the wages of civil servants through to the definition

of a single payroll and cuts for the pensions over 1000 euros.

Sixth Austerity Package and Reforms (February 2012)

The Sixth austerity package emerged from negotiations for austerity measures that would

allow further loans, a "haircut" (debt write-off for private debtors), and a second bailout

package to prevent sovereign default. As a result, Greece was granted by the EU a €100bn

loan and 50% debt reduction through "private sector involvement" (PSI) as a quid pro quo for

future reductions in government spending. The measures included among other 22% cut in

minimum wage that goes to €586 from €750 per month.

Seventh Austerity Package and Reforms (October–November 2012)

The Seventh austerity package emerged as a result of negotiation of Greece with creditors for

the definition of a new economic program, the mid-term plan 2013-2016. A first part of the

multi-bill was voted on 31 October and concerned the privatizations. The main part of the bill

was voted on 7 November 2013 and includes labor market reforms and budgetary changes

such as the total abolition of 13th and 14th month salaries among them.

Eighth Austerity Package and Reforms (April–July 2013)

The Eighth austerity package included two successive multi-bill with urgent measures so that

Greece to receive the new installment of the bailout package. Both were a requirement of the

creditors in order to be given the next bailout installments. It included layoff of another

15,000 public employees among them school guards and municipal policemen. The first

multi-bill was voted by the parliament on 28 April 2013 and the second was voted by the

parliament on 17 July 2013.

Ninth Austerity Package and Reforms (May 2014)

The Ninth austerity package was imported by the government on April 2014 and was

approved by parliament on 9 May 2014 with 150 votes for and 119 against. It included

provisions about Greek economic policy during the four next years, under the title Medium-

term Fiscal Strategy plan 2015-2018. The bill provided freeze of wages and pensions over a

period of the next four years, until 2018. Also it provided cuts public sector's expenses such

as cuts for the expenses of the Ministry of Health among others.

Tenth Austerity Package and Reforms (July 2015)

The Tenth austerity package emerged from the agreement of Greece with Eurozone for a new

86 billion euros bailout over three years. The deal requires the Greek parliament to approve

the measures. The first set of new austerity package was voted by Greek parliament on 16

July 2015. It includes transfer of many products in the high rate VAT (23%) and rise of

corporation tax from 26% to 29% for small companies among others. A second set of

measures voted on 23 July 2015 that concerns the Code of Civil Procedure.

Eleventh Austerity Package (August 2015)

The Eleventh austerity package included the bill that concerned the third bailout agreement

between Greece and the 'quartet' of creditors (EU, ECB, ESM and IMF). It approved on 14

August 2015 with 222 votes for, 64 votes against. Another 14 deputies abstained or were

absent. The new bill included provisions for the rise of various taxes and changes in the

retirement system.

SOLUTIONS TO THE CRISIS

Exit the Eurozone or "Grexit"

Nobel prize-winning economist Paul Krugman suggests that the Greek economy can recover from the severe recession by exiting the Eurozone (often called "Grexit" in the media) and launching a new national currency, the drachma. The devaluation of the currency may help Greece boost its exports and pay down its debts with cheaper currency. In fact, Iceland made a dramatic recovery after it filed for bankruptcy in 2008, taking advantage of the devaluation of Icelandic krona (ISK). In 2013, it enjoyed an economic growth rate of about 3.3 percent. Canada was also able to improve its budget position in the 1990s by devaluing its currency.

However, the consequences of "Grexit" could be global and severe, including:

Membership in the Eurozone would no longer be perceived as irrevocable. Other countries might be tempted to exit or demand additional debt relief. These countries might also see the interest rates rise on their bonds, making debt service more difficult.

Further depreciation of the euro relative to the dollar, which would cheapen Eurozone exports while making imports more expensive for Eurozone members. This could reduce the exports of non-euro countries.

Geopolitical shifts, such as closer relations between Greece and Russia, as the crisis sours relations with Europe.

Significant financial losses for Eurozone countries and the IMF, which are owed the majority of Greece's roughly $300 billion national debt.

Adverse impact on the IMF and the credibility of its austerity strategy, which has contributed to the Greek depression.

Inability of Greece to access global capital markets and the collapse of its banking system for an indeterminate period of time.

Digital Currency Cards

The bank multiplier effect means the amount of bank deposits far exceeds the amount of paper euros. Greece and its people face a shortage of paper euros when withdrawing funds from their bank accounts. Reducing the requirement of paper euros in the withdrawal process, into a digital form, allows withdrawals and spending.

Negotiate another Bailout

Greece could also agree to additional bailout funds and debt relief (i.e., bondholder haircuts or principal reductions) in exchange for further public pension cuts, privatizing certain government owned businesses, selling government-owned assets, raising tax rates, and more aggressively collecting taxes. However, the present austerity strategy has contributed to a Greek Depression, making it even harder to pay back its debts, so it is unclear how further austerity measures would help if not accompanied by very significant reduction in the debt balance owed. In 2011 the Greek government agreed to creditors proposals that Greece could

raise up to €50 billion through the sale or development of state-owned assets, but the Greek government was not successful, receipts were much lower than expected, and the policy was strongly opposed by SYRIZA. In 2014, only €530m was raised. Some key assets were sold to insiders.

European Debt Conference

Economist Thomas Piketty said in July 2015: "We need a conference on all of Europe’s debts, just like after World War II. A restructuring of all debt, not just in Greece but in several European countries, is inevitable." He pointed out that Germany received significant debt relief after World War II. A new institution would be required to manage budget deficits within limits across all Eurozone countries. He warned that: "If we start kicking states out, then the crisis of confidence in which the Eurozone finds itself today will only worsen. Financial markets will immediately turn on the next country. This would be the beginning of a long, drawn-out period of agony, in whose grasp we risk sacrificing Europe’s social model, its democracy, indeed its civilization on the altar of a conservative, irrational austerity policy."