Report - Greek Sovereign Debt Crisis Essay

2369 Words Jan 30th, 2016 10 Pages
Greek Sovereign Debt Crisis

CONTENTS

1.

INTRODUCTION................................................................................................................... 2

2.

THE CRISIS ........................................................................................................................... 2

3.

THE WAY TO THE CRISIS...................................................................................................... 3

4.

HOW DOES THE CRISIS AFFECT THE GLOBAL FINANCIAL SYSTEM? .................................... 4

5.

WHAT IF GREECE LEFT THE EURO ZONE? ........................................................................... 5

6.

IF GREECE HAS RECEIVED BILLIONS IN BAILOUTS, WHY IS
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2. The 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 euro zone – 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 €301bn.
The 1999 introduction of the euro as a common currency reduced trade costs among the Eurozone countries, increasing overall trade volume. However, labour 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

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