CENTRE FRANCO-VIETNAMIEN DE FORMATION A LA GESTION MBA - INTAKE 20

BUSINESS ECONOMICS
GROUP ESSAY
Topic:

GREECES DEBT CRISIS, AN OVERALL PERSPECTIVE AND POSSIBLE SCENARIOS

Instructor: Prof. Bruno Ponson Group members: Nguyen Quoc Bao Nguyen Minh Dang Nguyen Mai Lan Do Ngoc Duy Phuong Le Minh Hieu

Ho Chi Minh City - November 06th, 2011

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TABLE OF CONTENTS
EXECUTIVE SUMMARY ................................................................................................................. 4 I. INTRODUCTION WITH AN OVERALL PERSPECTIVE ............................................................. 6 1.1. Troubles looming in Europe ......................................................................................................... 6 1.2. Greeces position inside the debt crisis ........................................................................................ 6 1.3 Objectives and Assignment Methodology ..................................................................................... 6 1.3.1 Objectives of the essay:...................................................................................................... 6 1.3.2 Methodology and Approaches: ........................................................................................... 7 II. A PYRRHIC VICTORY FOR GREECE ........................................................................................ 8 2.1. Introduction: ................................................................................................................................. 8 2.2. Economic Outlook and Austerity Measures for Greece: .............................................................. 8 2.2.1 Greek economy before the debt writing-off: ...................................................................... 8 2.2.2 Austerity Measures: ........................................................................................................... 9 2.3. Most off debts to be written off: ..................................................................................................10 2.3.1 Loss on Greek banks: ........................................................................................................10 2.3.2 Loss on international scale: ...............................................................................................11 2.4 Conclusion: ..................................................................................................................................11 III. POLITICAL TURMOIL ...............................................................................................................12 3.1 Introduction: .................................................................................................................................12 3.2 Internal Political Friction: ............................................................................................................12 3.2.1 Resignation of Prime Minister George Papandreou: .........................................................12 3.2.2 Political and Social Unrest directed at Austerity Measures ...............................................12 3.2.3. The Scraped Referendum:................................................................................................12 3.3. The Strained Relationship between Greece and the EU .............................................................13 3.3.1 The conditions for the Bailout Financial Assistance ..........................................................13 3.4. The European Financial Stability Fund (EFSF): .........................................................................14 3.4.1 Definition of the EFSF: .....................................................................................................14 3.4.2 Functions of the EFSF: ......................................................................................................14 3.4.3 Financial Commitments of France and Germany for the EFSF .........................................15 3.4.4 Recent developments of the EFSF ....................................................................................15 3.5 Conclusion: ..................................................................................................................................15 IV. A PARTICULAR CASE OF MORAL HAZARD ........................................................................16 4.1 General assessment of risks, government debt levels and GDP growth of Eurozone members ...16 4.1.1 Assessing perceived risks via government bond yields: ....................................................16 4.1.2 Government indebtedness levels:......................................................................................16 4.1.3 GDP Growth in the Eurozone: ...........................................................................................17 2

4.1.4 Conclusion on the overall economic outlook of Eurozone members: ................................17 4.2 Further Financial Assistance: .......................................................................................................18 4.3 A Particular Case of Moral Hazard: .............................................................................................19 4.3.1 A Moral Hazard accompanying Greece: ...........................................................................19 4.3.2 France and Germanys stance on the Moral Hazard:.........................................................20 4.4 Conclusion on a particular case of Moral Hazard: .......................................................................21 V. THE RETURN OF DEPRESSION ECONOMY FOR GREEK .....................................................22 5.1. Introduction: ................................................................................................................................22 5.2. Negative factors dominate new financial assistances influences on Greek economy:...............22 5.2.1 External factors: ................................................................................................................22 5.2.2 Internal factors: .................................................................................................................25 5.2.3 New conditional Bail-out and possible effects on Greek economy: ..................................28 5.3 Conclusion: ..................................................................................................................................29 VI. GLOBAL ECONOMIC TURMOIL .............................................................................................30 6.1 Introduction: .................................................................................................................................30 6.2 The bright side of Greece leaving the Eurozone:.........................................................................30 6.3 The dark side of Greece leaving the Eurozone: ...........................................................................30 6.4 Negative Consequences on the Global Economy: .......................................................................31 6.5 Conclusion: ..................................................................................................................................32 FINAL CONCLUSION......................................................................................................................33 APPENDICES ...................................................................................................................................34 REFERENCES ..................................................................................................................................36

EXECUTIVE SUMMARY
This essay discusses in details the issues and the problems of Greeces debt crisis by a unique combination of feasible prospective scenarios associating with crucial relevant data and information. This approach allows the introduction of certain useful economic themes with ease, in which economic and market data are gradually presented to further clarify each distinctive scenario. Throughout the analysis, the economic, financial and political parties are identified along with their motives, their agenda and most importantly, their modus operandi in the multiple approaches to solve or at least contain the debt crisis. Because of the particular methodologies and approach, this essay relies mostly on real data and information available mainly via public domains and media outlets. As a result, to avoid any mistakes, which could lead to critical economic misjudgments, market and fundamental data and information is retrieved in a strictly manner through credible sources and quotes, individually or collectively. However, given the enormous amount of data gathered, certain minor discrepancies between each data set are to be expected. Throughout the essay, careful consideration has been taken in order not to provide any personal judgment which carry certain biases or distort views toward a particular faction or any development in this crisis. Such an objective and neutral view in this essay also allow a more quantitative approach toward any controversial discussion. The main body of the essay consisted of 5 main parts which reflect 5 possible scenarios as following: A Pyrrhic (futile) victory for Greece. Greek political and social turmoil. A particular case of Moral Hazard. The return of the Depression Economics. Global Economic Meltdown. Initially, constructing each separated case requires some firsthand assumptions. Assumptions are based on available premises, which have already been discussed in numerous articles regarding the debt crisis. After that, individually, each scenario is constructed by gathering the relevant variables bit by bit. After gathered information and data is deemed sufficient, each scenario will erect and be supported from the already available knowledge. This approach allows a much more comprehensible reading of the whole situation with the help of the visual representations to quickly grasp the ideas. One trade off of this approach is that the data might not be present in a strictly systematic manner, which might result in the overlapping ideas and information between sections.
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According to the objectives and the stated methodologies of this paper, it is hoped that somehow the research could provide contextual economic scenarios for better understanding not limited to the debt crisis, but various economic, political and social phenomena. Nevertheless, under the frame of a small essay, the ideas may look partially presented and some scenarios analyses might not look deep enough to answer the fundamental questions. Finally, it is recommended that further studies and researches could extent the limited scope of this study and provide a more completed picture of the debt crisis, in which relevant data and arguments are more carefully discussed and analyzed. Another recommendation is additional research and studies with a strictly sophisticated quantitative approach, where the possibility of each scenario can be calculated and quantified.

I. INTRODUCTION WITH AN OVERALL PERSPECTIVE

1.1. Troubles looming in Europe
Since early 2010, there has been a major debt crisis in Europe. The governments of several countries in the Eurozone have increased their accumulated debts to the unsustainable levels of government debt. Three European countries, Greece, Ireland, and Portugal have turned to other core European countries such as France and Germany and even the International Monetary Fund (IMF) for emergency financial assistance. The crisis now seems to be contagious and spreads gradually to the core of the Eurozone, where the next vulnerable countries are Italy and Spain, respectively the third and fourth largest economies in the Eurozone. Additionally, there has been limited success in terms of stopping and resettling the debts which could threaten to destabilize the economic balance of the region.

1.2. Greeces position inside the debt crisis

Greece has been at the center of the Eurozone debt crisis with highest levels of public debt in the Eurozone, and one of the biggest budget deficits. Greece was the first Eurozone member to come under intense market pressures and the first to ask other Eurozone member states and the IMF for financial assistance. Over the past year, the IMF, European officials, the European Central Bank (ECB), and the Greek government have undertaken substantial crisis response measures. In July 2011, holders of Greek bonds have also indicated that they will accept losses on their investments to alleviate Greeces debt payments in the short-run. If these plans are carried out, Greece will be the first advanced economy to default in almost half a century.

1.3 Objectives and Assignment Methodology

1.3.1 Objectives of the essay: i. ii. Providing feasible future scenarios for Greece economy, in which economic fundamentals and valuable information are quantitatively represented and analyzed. Further investigating the relationships between parties and their connectedness through a major debt crisis theme to clearly see the economic actors and forces in these scenarios. Reporting the latest developments of the crisis response measures on a regional and global level. Providing valuable insight and arguments from credible sources.

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1.3.2 Methodology and Approaches: Greeces debt crisis has been a subject of interest for intense debates and arguments not only on a market level, but also on the academic level. As a result, the essay will try to explain the causes of the crisis, the policy responses to the crisis, and assesses crisis response measures to date with the following approaches: i. By assigning useful data and variables into each categorized feasible scenario (there are five scenarios in total). With this approach, the macroeconomic view of different scenarios will be explained thoroughly with the assistance of reliable information. By quantitatively justifying involving variables in each scenario and from the initial assessment, an educated prediction process will be outlined to further clarify the economic, social and political outcomes. By adding comments, advices, valuable insights and constructive criticisms, individually and collectively, from credible financial and media institutions in order to present solid arguments for each scenario. By updating latest developments and involvements of all macroeconomic forces (private and governmental sectors included) within the debt crisis context in order to present a completed picture of the complicated issue. By selecting useful, concise and straight to the point data and information in the form of charts, graphs and graphical representations, with which will contribute to the value added approach in this essay. By utilizing some of the most basic critical reasoning tools. The first tool is the causality reasoning, with which data set is presented first hand and base form the available data, a solid outcome is drawn upon. The second tool is deductive reasoning, where from a set of general data set, conclusion is made on a specific individual. There will be a wide range of additional critical thinking methods utilized in this essay to construct each scenario There will be no assigned possibility for each scenario due to the constantly changing variables on the daily basis. Another problem with the quantitative possibility approach is that it will demand a larger scale of analysis way beyond the scope of this essay.

ii.

iii.

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II. A PYRRHIC VICTORY FOR GREECE

2.1. Introduction:
The first scenario comes into analyses is that Greece successfully convinces its lenders to write off most of its debts through the successful combination of severe austerity and economic growth. It is virtually impossible to convince lenders writing off debts for Greek without any conditions imposed. The "Troika" of lenders, the European Union, International Monetary Fund and European Central Bank, will require Greece to take more severely painful steps to cut its borrowing so that they can take into consideration of debt forgiveness. Should Greece success in fulfilling lenders requirements, the writing off may have a possibility of being materialized. Somehow, this can be a victory for Greece because they will be free from the burden of heavy debt loads. However, even if this impossible scenario happens, Greece must face a lot of problems, including austerity, economic recession, bankrupts of Greek banks, and low growth. As a result, being written off most of its debts would look like a Pyrrhic victory for Greece. The following scenario analysis will mainly focus on the effects on Greek economy before and after the debt writing-off, based on two assumptions Greece having success in austerity and the lenders approvingly write off most of Greeces debt.

2.2. Economic Outlook and Austerity Measures for Greece:

2.2.1 Greek economy before the debt writing-off: In early 1990s, Greece took its first step to adopt the euro as national currency. As a member of Europe Union, Greece government took advantage of greater access to cheap credit to pay for government spending, especially public sector wages benefits and offset low tax revenue. As a result, the federal budget and trade deficits increased sharply during the 2000s. Figure 1 illustrates the increasing deficits in both Greek budget and current accounts for the last decade. If the deficits keep on increasing, there will be many fatal consequences for Greece as later analyses. In this scenario, the Greek government must undertaken ambitious fiscal consolidation measures and economic reforms as a condition of financial support from the Troika; otherwise, there will be no writing off. It is simply explained by the fact that no lenders will accept to support Greece except that it can slow down the deficits and reduce its future borrowing. Moreover, borrowed funds must be channeled into productive investments that would generate future growth, increase the competitiveness of the economy, and create new resources with which to repay the debt.
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Figure 2.1: Greece Budget and Current Account Deficits

2.2.2 Austerity Measures: Taking more ambitious steps means that Greece must cut a lot of the federal budgets and increase the taxes, which is very unpopular since nearly two-third of Greeks say that they are against these policies. 1The outlined austerity program aims to reduce the governments budget deficit by 11% through 2013, bringing it below 3% of GDP by 2014. For a completed list, please consult in the reference [1]. 2.2.2.1 Cutting Federal Budgets: At present, the Troika has released a range of requirements for Greek government to cut the federal budgets, such as: The public sector wages decrease by 20%, wages of state-owned enterprises by 30%. Monthly pensions above 1,000 decrease by 20%; health spending should be cut by 310 million in 2011 and a further 1.8 billion between 2012 and 2015. Education spending should be trimmed through merging or closing of 1,976 schools. Defense spending reduces by 200 million in 2012 and 333 million every year from 2013 to 2015. 2.2.2.2 Increasing taxes:
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The proposals take taxes increases into consideration as following. Raise taxes by 2.32 billion in 2011, with additional taxes of 3.38 billion in 2012, 152 million in 2013 and 699 million in 2014.

A solidarity levy of between 1% and 5% of income will be levied on households. It will be raised twice next year. The tax-free threshold for income tax will be lowered from 12,000 to 5000. VAT rates are subjected to rise: the 19% rate will increase to 23%, 11% will increase to 13%, and 5.5% will increase to 6.5%. 2.2.2.3 Consequences of austerity on Greek economy: Apparently, these terms are unacceptable to Greeks who are familiar with living beyond their means since even before they joined the Eurozone. Reducing the public benefits and increasing taxes can result in social unrest, mass tax evasion and strikes by tax collectors. 3These austerity measures will also deepen Greece's recession more and thus will shrink Greek economy by between 4.5% - 5.3% this year. Greece economy will possibly shrink even further when Greece adopting more ambitious austerity plans. Greek government deeply understands that taking painful steps is its fundamental actions for the convincingly discussion with the Troika. Although it is not easy for Greeks to accept austerity, they have to face the prospect of limited options available to get the approval of the lenders.

2.3. Most off debts to be written off:

After years of painful cuts to fulfill Troikas requirements and with a combination of reviving economy, Greece may be succeed in convincing its lenders to write off its debts. However, there are many negative consequences in this case for the so called success. 2.3.1 Loss on Greek banks:
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With almost 80 billion invested in Greek sovereign bonds, Greek banks are holding a biggest portion of the 200 billion worth of debt currently in private hands. Writing off debts will probably bankrupt the Greek banks. 5An orderly bankruptcy already occurred on October 27th during the European summit when the banks and other financial institutions proposed a plan to write off 50% of Greece's financial obligations. In this scenario, the more unfavorable case happens when the Greece slides into a disorderly state bankruptcy. Financiers generally agree that Greek banks would experience a run on their deposits and Greek investors might try to withdraw their money from the bank and send as much of it as possible abroad. The problem is that Greek banks cannot have money for those transactions and the banks would need to be taken over by the European Financial Stability Facility (EFSF) until new capital becomes available.

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The Greek government will no longer be able to pay state officials as well, utilities would be shut off and companies would slide one after the other into insolvency. To solve this problem, government should nationalize their Greek banks which may be extremely complicated. Furthermore, Greece may still face years of low growth as its economy is uncompetitive inside the euro. There will be no investors who want to focus on Greek market, which has many obstacles such as high taxes, high unemployment, social chaos, low credibility, and low growth rate. Then, financial crises can easily happen again like a reoccurring theme. 2.3.2 Loss on international scale: In addition, not only Greek banks but also many other European banks should suffer from this bankruptcy due to high exposure.

Figure 2.2: Banks exposure to Greece debt.

Many economists are afraid of a contagion within the Eurozone that would choke the economies of entire nations, in which, Italy is greatest concern. When the Eurozone falls down, the global financial system would risk collapsing as well. It will be the worst consequences in this scenario.

2.4 Conclusion:
After reassessing many important variables in this scenario, it is obvious to see that Greece must take into account one important dilemma that it must solve before proceeding. The dilemma is whether Greek government honors its debt obligations and sacrifices anything, including public benefits, to uphold the commitment or it will take side with the public and take a firmer stance against austerity measures. Even for a winning scenario for Greeks where they roll over their debts completely, there will be some vulnerable parties that have to suffer the consequences, evidently including Greek citizens and the banking sector. This is the major theme and also the final conclusion of this Pyrrhic Victory for Greek.

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III. POLITICAL TURMOIL

3.1 Introduction:
In this scenario, Greece does not meet the conditions for the Austerity Measures, and the Troika would stop the bailout loan. Greek economy faces total collapse; this likely causes the bankruptcy, crisis and government failure.

3.2 Internal Political Friction:

3.2.1 Resignation of Prime Minister George Papandreou: George Papandreou has formally resigned as Greeces prime minister as a consequences of the Greek government debt crisis. Formerly, EFSF agreed to release the package 8 billion for Greek bailout though he still called for the Referendum and would like the country to decide itself. Moreover, Mr. Papandreou's Socialist Party (PASOK) holds a slim majority in parliament, 152 out of 300 seats. The Referendum could get the agreement and support from Greek people and that could help his party to have better chance in the next election. 3.2.2 Political and Social Unrest directed at Austerity Measures 3.2.2.1 Cutting Federal Budget: Please refer to section 2.2.2.1. 3.2.2.2 Taxation: Please refer to section 2.2.2.2. 3.2.2.3 Privatization: Selling 10% of Hellenic Telecom to Deutsche Telekom for 400 million. Selling stakes in various banks, utilities, ports, airports and land holdings. However, if the Austerity Measures policies demanded by the Troika are implemented, the most vulnerable parts of the population who rely heavily on social security will be affected. As a result, heavy resistances and social unrest against the severe austerity measures have broken out recently, evidently on the streets where thousands of Greek citizens marched. There have even been reports of violent encounters between the people and the government forces. 3.2.3. The Scraped Referendum: Greeces government planned to hold a referendum made European policymakers worry about a financial market panic that could destroy investors confidence in vulnerable countries, and
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bring the European monetary union close to collapse. In its own defense statement, Greek government announced that it wanted to take into accounts the willingness of its citizens toward the conditions of the future financial assistance. However, facing mounting criticisms from all political spectrum internally and externally, Prime Minister George Papandreou backed off and then scraped up the Referendum entirely. Such a drastic action from the former Prime Minister cost him his position in the cabinet despite the successful confidence vote in the Parliament on November 4th, 2011.

3.3. The Strained Relationship between Greece and the EU

Greece's relationship with the EU has become increasingly strained over the last couple of years, due to the country's economic problems. By 2010, it had a huge public debt, which caused a crisis when it struggled to borrow money to pay back its debt. Greece is a significant recipient of EU subsidies and aid.

Figure 3.1: Summarizes the Greek Debt Crisis on 2011

Figure 3.1 shows the government debt is 329 billion which is significantly greater than the gross domestic product, debt to GDP ratios is about 143% against the Euro convergence criteria (less than 60%). Moreover, the debt and the interest payment as a percentage of government revenue increase while the GDP is moving in an opposite way. 3.3.1 The conditions for the Bailout Financial Assistance Greece can only receive its next vital batch of bailout loans form EU and IMF of more than 100 billion ($133 billion) if it strictly follows the conditions of Austerity Measures and Fiscal Consolidation policy as following. 3.3.1.1 Spending Cuts: Reducing the so-called 13th and 14th holiday payments for civil servants and cutting bonuses by a further 8% to save 1.1 billion in 2010. Workers earning less than 3,000 a month will get payments of 250 at Easter, 250 in summer
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and 500 at Christmas. Employees at state- run companies will have wages cut by 3%. Reducing the 13th and 14th holiday payments to pensioners to save 1.5 billion in 2010. Retirees receiving less than 2,500 per month will get 200, 200 and 400 for each period. Postponing the second tranche of so-called solidarity bonuses to 2.5 million poorer Greeks, a pre-election pledge, to save 400 million in 2010. Cutting public investment plan by 500 million this year. 3.3.1.2 Increasing Revenue: An increase in the two main sales-tax rates from 21% to 23% and from 10% to 11%. Thats equivalent to 800 million in 2010 and 1 billion in 2011. Cigarette, fuel and alcohol tax increases to raise 450 million in 2010 and 600 million in 2011. 3.3.2 External Political Pressure from a Franco- German coalition on Greece: Germany and France are piling pressure on Greece to make up its mind on whether it wants to stay in the Eurozone. This coalition first met with the heads of EU institutions and IMF to discuss how to limit the damage from the Greek move and apply pressure for a swift outcome. Greece would not receive an urgently needed 8 billion if Athens would not stick to its Austerity Program.

3.4. The European Financial Stability Fund (EFSF):

3.4.1 Definition of the EFSF:
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The European Financial Stability Facility (EFSF) is a special purpose vehicle financed by members of the Eurozone to combat the European sovereign debt crisis. It was agreed by the 27 member states of the European Union on 9 May 2010, aiming at preserving financial stability in Europe by providing financial assistance to Eurozone states in economic difficulty. The Facility is headquartered in Luxembourg City, and the European Investment Bank provides treasury management services and administrative support to it through a service level contract. 3.4.2 Functions of the EFSF: Issue bonds or other debt instruments on the market to raise the funds needed to provide loans to countries in financial difficulties. Intervene in the debt both on primary and secondary markets. Act on the basis of a precautionary program.
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Finance recapitalizations of financial institutions through loans to governments including in non-program countries. 3.4.3 Financial Commitments of France and Germany for the EFSF Initial contributions Guarantee Commitments Percentage per capita (EUR) Millions France 89,657.45 20.38% 27.13% 1,398.60 1,454.87 Enlarged contributions (see enlargement section) Guarantee Commitments Percentage (EUR) Millions 158,487.53 211,045.90 20.32% 27.06%

Germany 119,390.07

Figure 3.2: Financial Commitment of France and German toward the EFSF.

3.4.4 Recent developments of the EFSF On reports that the EFSF would be leveraged to a figure around 2 trillion or more, however, it likely to be near 1 Trillion, then in the latest report shows that the leveraging of the bailout fund is unlikely to exceed 1 trillion

3.5 Conclusion:
This section identifies the very fundamental dilemma for Greek government. Will Greece sacrifice everything to uphold its financial obligation or will it turn to the people to gather political support to go against harsh austerity measures? Greek government has to manage the delicate debt issue under heavy economic, political and social constraints, where it has suffered the first political loss of George Papandreou resignation. Even though the new technocratic government led by economist Lucas Papademos promised to introduce several new measures to fight of the debt crisis, economic outlook of Greece still looks negative at the moment.

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IV. A PARTICULAR CASE OF MORAL HAZARD

4.1 General assessment of risks, government debt levels and GDP growth of Eurozone members
4.1.1 Assessing perceived risks via government bond yields: In this scenario, Greek will temporarily leave the center spotlight of the analysis to give ways to several neighbor countries in its Eurozone. The particular interest in this section is fixed on the economies of Italy, Ireland, Spain and Portugal, which are all lying deep in trouble water with their own debts. To understand the overall risks involving with those countries, first lets look at the bond yields associating with them on a large time scale.

Figure 4.1: 10-year government bond yields (in percentage) of the associating countries.
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The chart in the figure 4.1 shows that from 2009 onward, the bond yields of several Eurozone members have risen substantially for Greece, Ireland and Portugal. The Italian 10-year government bond yield as for 2010 fluctuated around 4% and has risen to 7% return ever since. The yields have risen across the board not only for the peripheral countries but spreading gradually for the core of Eurozone. The higher bond-yields signify an elevated objective risks that the lenders must consider before decide to buy the bonds. They also signal the problems that these economics have to struggle amidst the global recession. 4.1.2 Government indebtedness levels: From the perceived level of risks via bond-yields, further observations could be conducted through the government level of debt compared to GDP in percentage. The government

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indebtedness levels are separated into 2 parts; first is the debt level circa 2007 and second is the subsequent projected debt level from 2007 to 2012 according to Figure 1.2.
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Again, from the chart in figure 4.2, the government indebtedness of several Eurozone members could be identified easily. Of particular interest are Greek and Italy, in which their debt levels have gradually added up to nearly 150% of their Gross Domestic Product (GDP). In addition, Ireland managed to increase their debt level from around 25% to almost 120% of its GDP and Spain accelerated the debt level to almost 80% GDP. These levels of indebtedness of these countries are deemed unsustainable, and without any external financial assistance in the form of bail-out or debt forgiveness, these countries would eventually fail to make interest payments and spread the risks across Europe.

Figure 4.2: Government debt levels before and after 2007.

4.1.3 GDP Growth in the Eurozone: Figure 4.3 shows that several members of the Eurozone members suffered a huge dip in the GDP Growth between 2007 and 2009. They all experienced an economic contraction at the end of 2009 when their GDP Growth rate headed toward negative territory. Since then, most of them have stabilized the economies except Greek, which is still struggling at a negative 5% GDP Growth contraction. 4.1.4 Conclusion on the overall economic outlook of Eurozone members: Although the economic outlook of several core members of the Eurozone such as France and Germany is positive, the combination of the 3 aspects of low GDP Growth, government indebtedness and the perceived risks from lenders via bond yield will pose serious threats to not only the European financial system but the individual countrys economy as well.

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Figure 4.3: GDP Growth in the Eurozone [2].

Further examination shows that the problems do not come from Greeces debt crisis exclusively. The Eurozone members, more or less, have to face some fundamental economic challenges that were unsustainable even before the crisis. For example: Spain suffers from a serious housing bubble coupling with an abnormally high unemployment rate (21.3% as of Q1 2011). Italy has troubles with its dysfunctional economy (evidence in its low GDP Growth, high 10-year bond yield and high level of Debt to GDP ratio). Ireland is still fighting to get out of the recession double dip and its bloated banking sector. Portugal with a decade of anemic economic growth.

4.2 Further Financial Assistance:

From the discussion in section 4.1, most analysts have agreed that without any external financial assistance, several troubled Eurozone members will face paramount obstacles to meet their prior financial obligations. Furthermore, the probability of the debt crisis could be contagious and spreads rapidly from the peripheries to the core of the Eurozone. 9Due to the problem of contagiousness, the European Union (EU) and the International Monetary Fund (IMF) have swiftly moved in and provided the much needed financial assistance for Greece, Ireland and Portugal. Figure 4.4 show the total fund committed by the EU and the IMF. In addition, the Eurozone has created the European Financial Stabilization Fund (EFSF) as a special purpose vehicle to tackle the debt crisis. Under the agreed framework, the EFSF will not only be limited to provide emergency loans, but also allowed to providing precautionary lines of credit, financing the recapitalization of the European banks and even purchasing bonds in secondary market to increase markets confidence. The latest financial commitment for the EFSF has reached to almost 1.2 trillions.
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Figure 4.4: EU and IMF Financial Assistance.

So far, despite the swift policy responses and the total financial assistance to aid several European members, the success has been limited to avoiding a full scale disorder default from Greek government and constructing a temporary firewall to prevent the debt crisis from sweeping across. The one true solution to solve the crisis is nowhere near in sight as it needs not only a strong financial, but also a firm political commitment across Europe.

4.3 A Particular Case of Moral Hazard:

4.3.1 A Moral Hazard accompanying Greece: It is clear that amidst the economic turmoil, every country in the Eurozone will watch Greeces every move very closely. The policy responses to Greek will dictate the subsequent policy responses to Ireland and Portugal and any country with debt problems further in the future. The agenda of these countries are more or less similar, which is getting out of or at the very least reduce their financial obligations as quick as possible and preferably with minimal collateral damages from a financial, political and social aspects. There have been several arguments about repeatedly providing financial assistance to Greece in the form of bail - out money. As a result, the general consensus reacted negatively when the plan of Greece getting a 50% - debt forgiveness was discussed among key members of the EU. The opposition of the 50% - debt forgiveness plan and further financial assistance argues that by letting easy on Greek, other countries such as Ireland, Italy and Portugal will probably demand the same debt treatments. This will lead to a more heavy loss on bond holders who lent money to these aforementioned governments. Moreover, the argument extends to the overall attitude of Greece, Ireland and Portugal when they believe that the financial assistance and debt forgiveness will come rescuing eventually.
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The question is that will they still firmly follow the fiscal responsibilities and austerity outlined as an utmost condition for receiving assistance, or will they see it as an opportunity to hold the rest of the Europe hostage by their own debt situation. 4.3.2 France and Germanys stance on the Moral Hazard:

Figure 4.5: Exposure on Greek debt.

By a brief analyzing the situation of France and Germany, the understanding of their stance and their tactics to tackle with the situation with Moral Hazard will be clear. France and Germany are the most two active of the Eurozone core members trying to come up with the solution of the debt crisis. According to figure 4.5, they also have the most exposure in Greek debt with $56.7 billion and $33.9 billion, respectively. The stake of France in Greeks debt is obviously larger then Germany. By default, France has been the most active member pioneering to provide assistance to Greek by contributing to the EFSF 8% of its GDP. By allowing the Moral Hazard to surface, the size of the EFSF would have been increased substantially as well. And by increasing the EFSF, Frances commitment swells up to 13% of its GDP and therefore, its debt level would surpass 100% GDP. This explains why French bond spread has started to widen and reached 192.6 basis points recently (.FRGER10:IND via Bloomberg). Germany has a smaller stake in Greeks debt compared to France, but nevertheless, the amount of lending to Greek is quite staggering. German economic data has been steady since 2009 but came a bit weak recently prompting fears that the weaken economy will lower German commitment to the financial assistance. Germany also has to overcome its heavy internal political pressure from the opposition parties and the tax payers before announcing further commitment to tackle the debt crisis.

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Figure 4.6: French 10 years bond spread (year on year).

Germany has a smaller stake in Greeks debt compared to France, but nevertheless, the amount of lending to Greek is quite staggering. German economic data has been steady since 2009 but came a bit weak recently prompting fears that the weaken economy will lower German commitment to the financial assistance. Germany also has to overcome its heavy internal political pressure from the opposition parties and the tax payers before announcing further commitment to tackle the debt crisis.

4.4 Conclusion on a particular case of Moral Hazard:

After assessing in details various economic data involving several European members, the possibility associates with a Moral Hazard situation is likely to happen if Greece is treated with more favorable terms than Portugal and Ireland. Thus, the EU, the IMF and the Franco German coalitions have to treat the issue with a very delicate balance here. They have to impose heavy measures on Greek, Ireland and Portugal in terms of austerity measures and fiscal consolidations in order to maintain a strict framework for other countries to adhere to their financial obligations responsibly. On the other hand, they still have to provide assistance with favorable terms in crucial moments so that these heavy indebt countries will not default, thus triggering a subsequent wide spread money run on a global scale.

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V. THE RETURN OF DEPRESSION ECONOMY FOR GREEK

5.1. Introduction:
But what happens if Greek government will not be written off all its debts? Greece now faces two options, both of them are painful: stay the course, or default and leave the monetary union. If Greece decides to stay in the zone, it has to implement stricter austerity measures as a condition for another bail-out package, which may lead to unemployment for the foreseeable future. Or it can choose to quit from its debts responsibility, which means it has to exit the monetary union and return to Drachma. Current situation of Greek economy directs to an economic depression other than a positive scenario, not only due to the effects from global economy slowdown but also majorly from Greek internal problems itself.

5.2. Negative factors dominate new financial assistances influences on Greek economy:
5.2.1 External factors: 5.2.1.1 Economic slowdown in the Europe: While Greeces biggest loan owners are facing with the prospect of economic contagion, especially the wobbly economies of Spain, Portugal, Italy, French and even German banks, which hold billions in Greek. Even 2 years ago, European weakest countries already show signals of a recession: government deficit was high and has been raising gradually, the government debt ratio remains on an increasing path with estimation to reach 88% in the Eurozone by 2012. Exchange rate has also increased while their government debt is soaring up to record figures (see below chart). Starting with Greece, the debt crisis is now spreading gradually to the core of the Eurozone. Greece, Italy, Spain have been the recipients of bailouts as attempts to solve the crisis keep stalling. Italy became the latest to feel the domino effect of the markets when its debt rating was lowered, the latest in a series of downgrades. The debt crisis is even worse when currently France and Britain shows signs of losing control on the economy downturn, which may led to a domino-effect not just in the continent but for the global economy.

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5.110Macroeconomic development in periphery EMU - countries

5.2.1.2 Economic slowdown in the U.S While the domino reaction from European crisis continues spreading, it may reach the U.S, European biggest trading partners and whose banks are heavily exposed to Spain, Ireland, Italy and France. 11Adding to the situation, US credit rating downgrade last August by S&P after a consecutive 70 years rated AAA showed a signal that U.S. governments ability to manage its finances less stable, less effective and less predictable. Over the time, the downgrade could push up borrowing costs for the U.S. government, drive up interest rates for consumers and companies seeking mortgages, credit cards and business loans. As a result, in a couple of years, U.S economy is forecasted to have a low growth rate.

Figure 5.2: Growth Trend of the US economy.

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5.2.1.3 Signs of weaker economy in China

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Because China's mighty growth engine has been one of the few drivers of the global economy since the financial crisis of 2008, signs of deceleration could add to worries about the global outlook. On the surface, economists at the International Monetary Fund and most banks are still estimating China's growth rate to be more than 9% this year. However, some signs of weakness have been revealed such as: Trade surplus increases, the country's huge manufacturing sector is starting to slow and orders are weakening, especially for exports. The real estate bubble is starting to show sigh of troubles. Inflation remains stubbornly high for consumers despite a series of interest rate increases and ever-tighter limits on bank lending. In particularly, there are many indicators to the recession of the giant economy. Amongst them was the sudden drop in Chinas November Purchasing Managers Index (PMI). 13It fell to 49.0, down from 50.4 in October, even worse than the estimate of 49.8 of the Bloomberg News survey of 18 economists (Figure 5.3). Subsequently, the Shanghai Composite Index fell 3.3% in a trading day, the biggest decline in almost four months.

Figure 5.3: Chinas Manufacturing PMI, New Orders and New Export Orders.
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The People Bank of China (PBOC) in November 2011 announced the first cut in banks reserve requirements since 2008, moving two hours before the U.S. Federal Reserve led a global effort to ease Europes sovereign-debt crisis. Chinas economic growth is projected to face significant downside risks in the first half of 2012.

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5.2.1.4 Dramatically increasing borrowing costs and interest rates Along with the recession, throughout 2010 and 2011 investors continued to demand ever higher interest rates for Greek borrowing as the market inevitably appeared some sort of default. As investors became increasingly nervous that the Greek governments debt was too high, and that it would default on its debt, they started demanding higher interest rates for buying and holding Greek bonds (Figure 5.4). Higher interest rates compensated investors for the higher risk involved in holding Greek government bonds, but they also drove up Greeces borrowing costs, exacerbated its debt levels, and caused Greece to veer towards default. 5.2.1.5 Effects on Greek economys growth: The global financial system is highly interconnected, so the problems in one part of the world can reverberate almost everywhere else risking a cascade of default, contagion, contracting credit and collapsing economic activity. With such a tight economic relation, Greek economy will hardly recover when global economy is slowing down.

Figure 5.4: Greek Bond Spreads (10-year-notes versus Germans bonds), 1993-2011

5.2.2 Internal factors: Along with external difficulties, internal issues are contributing to Greeces possible depression. 5.2.2.1. Greeces Economy shows Fundamental weaknesses: 5.2.2.1.1 GDP: The Greek Statistical Authority has revised its GDP estimates for 2006 to 2010. All the revisions, save the one for 2010, resulted in a lower GDP estimate, bringing 2010 GDP down by 2.9% in real terms. The government now says it expects the economy to shrink by 5.5% in
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2011 and by 2.5% in 2012. With the revisions in both the historical numbers and the new forecasts, Greeces GDP in 2012 will reach 2003 levels (one caveat: the Greek Statistical Agency will also revise 2000 to 2005 numbers). In other words, Greece in 2012 will be exactly where it was in 2003 effectively losing a decades worth of economic activity.

Figure 5.5 15Greek real GDP Growth projections

5.2.2.1.2 Debts to GDP ratio:

Figure 5.6: Greek Debt to GDP Projection

To date, the policy response has not put Greece on a clear path to recovery while debts are increasing dramatically over years. In July 2011, the IMF estimated that public debt increased substantially between 2010 and 2011, from 143% of GDP to GDP. It also forecasted that Greeces debt will rise again in 2012 to 172% of GDP, start declining in 2013.

Greeces Greeces 166% of and only

Growth is proving contraction for 2011 of 3.9% because austerity measures have depressed domestic sources of growth. Greece falls under a dilemma: it must rely on exports for expanding its economy and on the depreciation of currency to recover exports. However, as a
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member of the Eurozone, it cannot depreciate its currency against its major trading partners to help spur exports. 5.2.2.1.3 Greek banking system: Adding to the negative scenario has been the persistent flow of deposits out of the banking sector. Since the crisis began, 60 billion in deposits have been withdrawn from Greek banks, about a quarter of the countrys output. Bankers in Athens said that outflows were particularly severe after comments by a Greek politician about the possibility that Greece could stop using the euro. In addition, tight liquidity and rising non-performing loan are putting strains on the banking system. In line with the slowdown of economic activities and continuing deposit outflow, market pressures and high spreads have been keeping up the cost of financing and limiting private sectors access to bank loans, which partly pushes private sector to possible bankruptcy. 5.2.2.1.4 Unemployment:
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Beyond surviving the immediate crisis, Greeks, especially young ones, face a grim future. About a quarter of Greeks between the ages of 25 and 35 are already unemployed, and they face such a stagnant economy in coming years that surveys show many are trying to find work abroad. That would lead to a massive brain drain which is the last thing the country needs if it plans to get back on its feet in the future. 5.2.2.2 Political pressure against Austerity Measures and Financial ssistance conditions: Not only facing obstacles from outsiders, Greece now encounters problems arising from inside. Some Greek officials openly voice against the new austerity measures to avoid their association with the unpopular measures Greece must impose to qualify for new loans from Europe. Moreover, European requirement of permanent foreign monitoring in Greece to ensure of structural changes to revitalize its economy was considered as an affront to national sovereignty by many Greeks. In the through-the-looking-glass world of Greek politics, the argument between the supporters and oppositions in Greek Parliament was not over, not only about who could claim the cabinet positions but who could avoid taking them, particularly the Finance Ministry.

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5.2.3 New conditional Bail-out and possible effects on Greek economy: 5.2.3.1 The conditional Financial Assistance package: In order to stay in the monetary zone, Greece has to adhere to its financial obligations by using a combination of bail-out funds and painful austerity measures. Adding to the conditions set out for Greece in the 1st financial assistance in May 2010, this time the requirements are even stricter. Some of them are: Faster progress on privatization, Europe and the funding body have been demanding that Greece finally begin cutting public sector jobs and closing down unprofitable entities. A further tax of 10% on fuel, tobacco and alcohol is the first step for a series of new tax implementation. Members of Greek parliament will no longer receive bonuses. Special rules allowing for early retirement of civil servants will be tightened. 5.2.3.2 Financial Assistances questionable effects on Greek economy: In an optimistic view, as markets will be observing reforms progress, confidence in the ability of Greece to implement those measures will gradually be built. With emergency EU/IMF funds offering a temporary fiscal guarantee, spreads will gradually subside, gaining momentum as Greek fundamentals are seen to be improving. In time, reforms will be seen to have progressed enough to establish full confidence in EMU participation, allowing withdrawal of the emergency EU/IMF fiscal guarantee and a gradual return to a regime of credible commitment and fiscal sustainability. Greece will have returned to a path of sustainable growth and its economy will emerge restructured and stronger. However, on the other side, the situation may turn out to be worse. Firstly, with all the above said obstacles, Greece may not look for further support from other countries. Moreover, in a global downturn, Greece will be influenced, at least in the export which is one of its main GDP sources. Secondly, the austerity policy itself can cause trouble to Greek economy. The progress will only be gradual and not easy. There will initially be significant short-run welfare losses through higher unemployment and reduced output. This, in turn, might push Greek economy into another recession instead of growth. A typical example is the first package released to Greece in May 2010 by where the price was a series of austerity measures meant to cut its deficit and restore investor confidence. But almost a year after the bailout, Greek economy continued to underperform with 340 billion in
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debts. And though the cuts were meant to ease the fiscal crisis, the economic slowdown raised Greeces deficit to 10.5% of gross domestic product in 2010, exceeding the 9.6% target set by the government, while public debt swelled to 142.8% of GDP and the economy is shrinking by an estimated 5.5% in 2011. Those are all resulted from the austerity package which sent the economy far deeper into recession. From there, we may foresee the possible outcome of the new austerity measures on Greek economy, which is now even weaker and on the edge of collapse.

5.3 Conclusion:
With all bad conditions for economy growth, such as: the world economy is in downturn, Greek economy contains in itself a lot of troubles and also is still suffering from the first financial assistance package conditions, harsher austerity measures may result in a bad effect rather than an optimistic view. In other words, if Greece accepts to follow all Troika conditions in exchange for another bail-out package, its situation possibly becomes worsen and the economy can possibly fall deeper into depression.

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VI. GLOBAL ECONOMIC TURMOIL

6.1 Introduction:
The Troika decides to reject the bailout for Greece and the consequence which happens is Greece will default like the quotes:Prime Minister George Papandreou has said that rejection of the bailout would mean an exit from the euro. And the exasperated French leader, Nicolas Sarkozy, on a public statement to the press, told Greece to abide by the Eurozone rules or leave. In the worst situation Greece defaults and forced to leave the Euro, there are positive and negative sides:

6.2 The bright side of Greece leaving the Eurozone:

If Greece leaves Euro, then there is a high possibility that they have to go back to the Drachma, the original Greek currency. Some economists are taking the example of the default case of Argentina and give positive comments that leaving the euro and go with new old currency (Drachma) will bring certain benefits such as. Reestablishment of a Greek Central Bank, which functions as a Lender of Last Resort. As a result, Greek banks could receive much needed liquidity to avoid a full scale bank run. Greece could inflate itself out of the huge debt load since it could issue its own money to pay a part of its debt. Initial forecast expects a 50% devaluation of the Drachma. Greece gains more competitive in export and thus gain traction to increase their GDP. The relative competitive edge is obtained via currency devaluation, which results in cheaper exports compared to other countries. Greek assets start looking attractive again in the investors prospective, which might see a profitable opportunities to obtain a momentarily cheap assets. However, these economic outlooks are deemed to be overly optimistic for Greece. The decision of quitting the Eurozone, no matter how justifiable it is, still looks extremely radical and unprecedented in the political and economical points of view.

6.3 The dark side of Greece leaving the Eurozone:

Before Greece resorts to the last solution, it must take into considerations which parties will be most vulnerable under this circumstance and which consequences will it encounter.

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There will be a huge drop in confidence of investors who desperately channel the money out of Greece as soon as possible and sell their asset at fire sale rates as no one wants to be the last one on the sinking ship. Massive devaluation of the Drachma or worse, a full scale hyperinflation where the old Greek currency lost its value on the unprecedented level. 50% devaluation still looks overly optimistic since the debt Greece faces is denominated in Euros. Adding more into the problem is that the debt will never be forfeited and there will not be any financial assistance from the Eurozone once Greece departs. Of particular interest is the falling living standards throughout Greece since the import prices would increase many times. This is essentially no different than living under harsh austerity, where Greeks simply could not afford to pay for even some basic needs. The skyrocketing prices of imported goods also claim Greek industrial sector as collateral damage. With daily increasing prices of imported materials, Greek producers face a very grim future prospect instead of picking up orders and assisting the ailing economy. The overly enormous bureaucracy huddles and the legal framework where Greece has to resettle the paper work in order to depart from the EMU and reestablish its Central Bank. There is no estimation on this cost yet since it is extremely complicated to deduce it to a reasonably exact number. Additionally, if Greece is about to leaves Euro it will also risk: sovereign default, corporate default, collapse of the banking system and collapse of international trade. Greece also loses the investments from their disgruntled neighbors or any aids from European.

6.4 Negative Consequences on the Global Economy:

Europe Banks are taking big part holders of Greece debts (Figure 4.5). There is 2 kind of defaults which are orderly default meaning the payments of debts will be reschedule for decades and Disorderly default which means much of this debt not being repaid - ever. The real risk is that a unilateral default by Greece could lead to a financial panic, as investors fear that other, much bigger Eurozone countries may ultimately follow suit. Another risky aspect is the debt interconnectedness of several countries where everyone owes the money and everyone lends the money, simultaneously. This is a very fragile and shaky system that a slight disturbance occurs that violating the balance will result in the systematically collapsing of the whole structure. The level of the debt interconnectedness is visualized in Figure 5.1. Greece leaving the Euro increases the likelihood of a double dip recession across Europe. European banks will take major losses in their bond portfolios. Markets will
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also view a Greek exit from the Euro as a precedent for a risk of Moral Hazard. Exports across the Eurozone would decrease and there would be a recession that could spread across the world even to the US and China. Europe is China's biggest export market, accounting for roughly 22% of exports. If the European economy collapses, so do Chinese exports. China's economy is significantly dependent on the success of its exporting companies, many of which already operate on razor-thin margins. A weak Europe means many Chinese export companies could go bust en masses. If China's export sector suffers, domestic demand may shrink also. Furthermore the slowdown of the China will cause of the less demand of commodities and this will bring the problems to the commodities exported countries. This outcome will make these countries spend less expenditures and natural continuing, other exports countries will be affected which means the entire global economic will be turmoil, or at least slow down the growth rate.

Figure 5.1: 18The debt interconnectedness on a global scale.

6.5 Conclusion:
For Greece to finally resort to this last option, the economic, social and political aspects must have deteriorated beyond the point of no return. Such a radical action from Greek government signals that they have no more options available and the only option left is leaving the Eurozone regardless of the heavy consequences waiting in the future. The question is will Greece initiate such a drastic move at the expense of the rest of the world after weighing the pros and cons of this decision. This section could only identify a handful of involving parties and certain outcomes since this subject is extremely complicated in nature if such an event indeed happens.

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FINAL CONCLUSION
As of Greeces debt crisis, although there is still no end in sight and the one true solution to end the debt crisis is still far fetched, the evidence of a global effort to stop the crisis has finally started to emerge. The amount of political, economic effort is simply enormous in which every major party has to contribute its part with an unprecedented level of commitment, financially and politically to form a globally concerted actions plan to solve the crisis. The conclusion, contrary to the scenarios, ends with a positive note that somehow, the Troika lenders and the Franco German coalition will find a successful solution to end the debt crisis, preferably with minimal collateral damages of the involving parties. The global business cycle is heading toward negative territory and the bearish sentiment has been the major occurring theme since 2008. Nevertheless, the world still relies on some of its main engines to provide growth highly enough to pull the indebtedness countries out of their debts. The debt issue is not likely to be solved financially in terms of market intervention or monetary policies, but with a combination of real economic growth and technology driven corporations and countries, hopefully the global economic growth will still return in the foreseeable future. The 5 above possible scenarios hopefully provide a concise guide to the Greeces debt crisis from as many perspectives as possible. In reality, there could literally be innumerable directions, toward which Greece in particular and the global market as a whole will move. However, the scenarios provided here, from a group consensus, are likely to provide a numbers of macroeconomic phenomena which directly involve with International Business Economics.

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APPENDICES
1. Austerity Measures for Greece Source: Greek Ministry of Finance Economic Policy Programme Newsletter May 19, 2011 TAXATION INCREASE Taxes will increase by 2.32bn euros this year, with additional taxes of 3.38bn euros in 2012, 152m euros in 2013 and 699m euros in 2014. A solidarity levy of between 1% and 5% of income will be levied on households. It will be raised twice next year. The tax-free threshold for income tax will be lowered from 12,000 euros to 5000 euros, rather than the original plan of 8,000 euros. There will be higher property taxes. VAT rates are to rise: the 19% rate will increase to 23%, 11% become 13%, and 5.5% will increase to 6.5%. The VAT rate for restaurants and bars will rise to 23% from 13%. Luxury levies will be introduced on yachts, pools and cars. Some tax exemptions will be scrapped. Excise taxes on fuel, cigarettes and alcohol will rise by one third. Special levies on profitable firms, high-value properties and people with high incomes will be introduced. PUBLIC SECTOR CUTS The public sector wage bill will be cut steadily to shrink it by more than 2bn euros by 2015. Nominal public sector wages will be cut by 20%. Wages of employees of state-owned enterprises will be cut by 30% and there will be a cap on wages and bonuses. The number of civil servants to be suspended on partial pay will rise to 30,000 by the end of this year, from 20,000 planned initially. They will receive 60% of pay for one year, having been promised a job for life. All temporary contracts for public sector workers will be terminated. Only one in 10 civil servants retiring this year will be replaced and only one in 5 in coming years SPENDING CUTS Defense spending will be cut by 200m euros in 2012 and by 333m euros each year from 2013 to 2015. Health spending will be cut by 310m euros this year and further 1.81bn euros in 2012-2015, mainly by lowering regulated prices for drugs. Public investment will be cut by 850m euros this year. Subsidies for local government will be reduced. Education spending will be cut by closing or merging 1,976 schools. CUTTING BENEFITS Social security will be cut by 1.09bn euros this year, 1.28bn euros in 2012, 1.03bn euros in 2013, 1.01bn euros in 2014 and 700m euros in 2015. There will be more means-testing and some benefits will be cut. Monthly pensions above 1,000 euros to be cut by 20% Existing retirees aged under 55 to lose 40% of any pensions over 1,000 euros. The government hopes to collect more social security contributions by cracking down on evasion and undeclared work. The statutory retirement age will be raised to 65, 40 years of work will be needed for a full pension and benefits will be linked more closely to lifetime contributions.

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PRIVATISATION The government aims to raise 50bn euros from privatisations by 2015, including: Selling stakes this year in the betting monopoly OPAP, the lender Hellenic Postbank, port operators Piraeus Port and Thessaloniki Port as well as Thessaloniki Water. It has agreed to sell 10% of Hellenic Telecom to Deutsche Telekom for about 400m euros. Next year, the government plans to sell stakes in Athens Water, refiner Hellenic Petroleum, electricity utility PPC, lender ATEbank as well as ports, airports, motorway concessions, state land and mining rights. It plans further sales to raise 7bn euros in 2013, 13bn euros in 2014 and 15bn euros in 2015. LABOUR MARKET REFORM The law will make it easier for companies to cut their payroll costs. It will do this by suspending industry-wide wage bargaining.

2. Gross Domestic Product Growth of European Countries from 1999 to 2010 in %. Source: Eurostat.
GEO/TIME Belgium Germany Estonia Ireland Greece Spain France Italy Cyprus Luxembourg Malta Netherlands Austria Portugal Slovenia Slovakia Finland United Kingdom 1999 2000 3.5 3.7 2.0 3.2 -0.3 10.0 10.9 9.7 3.4 4.5 4.7 5.0 3.3 3.9 1.5 3.7 4.8 5.0 8.4 8.4 : : 4.7 3.9 3.3 3.7 4.1 3.9 5.4 4.4 0.0 1.4 3.9 5.3 3.5 3.9 Source: Eurostat 2001 0.8 1.2 7.5 5.7 4.2 3.6 1.9 1.8 4.0 2.5 -1.6 1.9 0.5 2.0 2.8 3.5 2.3 2.5 2002 1.4 0.0 7.9 6.5 3.4 2.7 1.0 0.5 2.1 4.1 2.6 0.1 1.6 0.7 4.0 4.6 1.8 2.1 2003 0.8 -0.2 7.6 4.4 5.9 3.1 1.1 0.0 1.9 1.5 -0.3 0.3 0.8 -0.9 2.8 4.8 2.0 2.8 2004 3.2 1.2 7.2 4.6 4.4 3.3 2.5 1.5 4.2 4.4 1.1 2.2 2.5 1.6 4.3 5.1 4.1 3.0 2005 1.7 0.8 9.4 6.0 2.3 3.6 1.9 0.7 3.9 5.4 4.7 2.0 2.5 0.8 4.5 6.7 2.9 2.2 2006 2.7 3.4 10.6 5.3 5.2 4.0 2.2 2.0 4.1 5.0 2.1 3.4 3.6 1.4 5.9 8.5 4.4 2.8 2007 2.9 2.7 6.9 5.6 4.3 3.6 2.4 1.5 5.1 6.6 4.4 3.9 3.7 2.4 6.9 10.5 5.3 2.7 2008 1.0 1.0 -5.1 -3.5 1.0 0.9 0.2 -1.3 3.6 1.4 5.3 1.9 2.2 0.0 3.7 5.8 0.9 -0.1 2009 -2.8 -4.7 -13.9 -7.6 -2.0 -3.7 -2.6 -5.2 -1.7 -3.6 -3.4 -3.9 -3.9 -2.5 -8.1 -4.8 -8.2 -4.9 2010 2.2 3.6 3.1 -1.0 -4.5 -0.1 1.6 1.3 1.0 3.5 3.7 1.8 2.0 1.3 1.2 4.0 3.1 1.3

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REFERENCES
1. International Monetary Fund, Greece: Staff Report on Request for Stand-by Arrangement, May 2010. 2. Greek Ministry of Finance Economic Policy Program Newsletter May 19, 2011. 3. www.businessinsider.com - Greek Finance Minister Expects Recession to Deepen - August 22, 2011. 4. www.dw-world.de - Greek haircut: When 50 percent is not half - 03.11.2011. 5. http://www.dw-world.de - Bankruptcy in Greece risks destabilizing global financial system 06.11.2011. 6. http://www.efsf.europa.eu EFSF organization and operations. 7. CRS Congressional Report - Aug 18 2011 8. Datastream via OECD Economic Outlook 2010. 9. IMF Press Release. 10. Macroeconomic development in periphery EMU-countries (The Greek Debt Crisis: Likely Causes, Mechanics and Outcomes - Michael G. Arghyrou & John D. Tsoukalas - CESIFO WORKING PAPER NO. 3266 Nov 2010). 11. http://www.washingtonpost.com/business/economy/sandp-considering-first-downgrade-of-us-credit-rating 12. http://www.tradingeconomics.com/china/inflation-cpi 13. http://www.embargozone.com/2011/11/30/a-closer-look-at-chinas-disappointing-pmi-number-2/ 14. http://www.businessweek.com/news/2011-12-01/china-s-manufacturing-contracts-for-first-time-since-2009.html 15. Organization for Economic Cooperation and Development (OECD), Quarterly National Accounts Dataset, accessed July 2011 16. http://www.time.com/time/world/article/0,8599,2094562,00.html#ixzz1dpyV791B 17. http://www.bbc.co.uk/news/business-15575751 18. http://www.nytimes.com/interactive/2011/10/23/sunday-review/an-overview-of-the-euro-crisis.html

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