Archive for the ‘Greece’ Category

The Greek Crisis: Possible Costs and Likely Outcomes of a Grexit

June 22, 2012 Comments off

The Greek Crisis: Possible Costs and Likely Outcomes of a Grexit
Source: Levy Economics Institute at Bard College

The European Union’s (EU) handling of the Greek crisis has been an unmitigated disaster. In fact, EU political leadership has been a failure of historic proportions, as its myopic, neoliberal bent and fear-driven policies have brought the eurozone to the brink of collapse. After more than two years of a “kicking the can down the road” policy response, it’s a do-or-die situation for Euroland. Greece has reached the point where an exit looks rather imminent (it’s really a matter of time, regardless of the June 17 election outcome), Portugal is bleeding heavily, Spain is about to go under, and Italy is in a state of despair. This Policy Note examines why the bailout policies failed to rescue Greece and boost the eurozone, and what effects a “Grexit” might possibly have—on Greece and the rest of Euroland.

Greece’s Pyrrhic Victories Over the Bond Swap and New Bailout

March 16, 2012 Comments off

Greece’s Pyrrhic Victories Over the Bond Swap and New Bailout
Source: Levy Economics Institute at Bard College

Nearly two years after becoming the first eurozone member-state to be bailed out by the European Union (EU) and International Monetary Fund (IMF), Greece is officially bankrupt. True, there was never any doubt about the outcome, but Greece’s restructuring of nearly 200 billion euros in private debt and the agreement for a new bailout package signify something much bigger—namely, the formal conversion of a sovereign nation into an EU/IMF zombie debtor, and a doomsday scenario that includes its forced exit from the eurozone.

+ Full Paper (PDF)

Greece: Illegal Immigration in the Midst of Crisis

March 14, 2012 Comments off

Greece: Illegal Immigration in the Midst of Crisis
Source: Migration Policy Institute

Once known for its large-scale emigration, Greece transitioned to a country of destination for Central and Eastern European immigrants after the fall of the Soviet Union and other communist regimes in the region. More recently, the country has become one of entry and transit for hundreds of thousands of unauthorized immigrants from Africa, Asia, and the Middle East. As a result, Greece is now grappling with issues related to its highly porous borders, mounting asylum applications, faltering immigrant detention system, allegations of human-rights violations, and the effective integration of the country’s many foreign-born permanent residents.
At the same time, Greece is struggling under the weight of what is perhaps the country’s worst economic recession in recent memory. Huge public debt and the government’s decision to borrow from the International Monetary Fund and the European Union have changed entirely the economic, political, and social environment of immigration in Greece.

Employment and income have shrunk for both the native-born and immigrant populations, while competition within and between the two has increased. This has resulted in lower wages, a contracting labor market, and fewer regularized immigrants — drawing attention to immigration as a growing threat to the cohesion of modern Greek society.

The New European Economic Dogma: Improving Competitiveness by Reducing Living Standards and Increasing Poverty

February 22, 2012 Comments off
Source:  Levy Economics Institute at Bard College
Greece’s new EU/IMF bailout package is all about private sector wage cuts and an overhaul of labor rights. In short, it will do absolutely nothing to address the nation’s economic crisis because it is not designed to rescue Greece’s embattled economy. In fact, it will have the unwanted effect of keeping the nation locked in a vicious cycle of debt—and leading, finally, to its exit from the eurozone. 

Full Paper (PDF)

New Study: U.S. Ranks Last Among High-Income Nations on Preventable Deaths, Lagging Behind as Others Improve More Rapidly

September 28, 2011 Comments off

New Study: U.S. Ranks Last Among High-Income Nations on Preventable Deaths, Lagging Behind as Others Improve More Rapidly
Source: Commonwealth Fund (Health Policy)

The United States placed last among 16 high-income, industrialized nations when it comes to deaths that could potentially have been prevented by timely access to effective health care, according to a Commonwealth Fund–supported study that appeared online in the journal Health Policy this week and will be available in print on October 25th as part of the November issue. According to the study, other nations lowered their preventable death rates an average of 31 percent between 1997–98 and 2006–07, while the U.S. rate declined by only 20 percent, from 120 to 96 per 100,000. At the end of the decade, the preventable mortality rate in the U.S. was almost twice that in France, which had the lowest rate—55 per 100,000.

In “Variations in Amenable Mortality—Trends in 16 High Income Nations,” Ellen Nolte of RAND Europe and Martin McKee of the London School of Hygiene and Tropical Medicine analyzed deaths that occurred before age 75 from causes like treatable cancer, diabetes, childhood infections/respiratory diseases, and complications from surgeries. They found that an average 41 percent drop in death rates from ischemic heart disease was the primary driver of declining preventable deaths, and they estimate that if the U.S. could improve its preventable death rate to match that of the three best-performing countries—France, Australia, and Italy—84,000 fewer people would have died each year by the end of the period studied.

“This study points to substantial opportunity to prevent premature death in the United States. We spend far more than any of the comparison countries—up to twice as much—yet are improving less rapidly,” said Commonwealth Fund Senior Vice President Cathy Schoen. “The good news is we know lower death rates are achievable if we enhance access and ensure high-quality care regardless of where you live. Looking forward, reforms under the Affordable Care Act have the potential to reduce the number of preventable deaths in the U.S. We have the potential to join the leaders among high-income countries.”

+ Variations in Amenable Mortality—Trends in 16 High-Income Nations

CRS — Greece’s Debt Crisis: Overview, Policy Responses, and Implications

September 6, 2011 Comments off

Greece’s Debt Crisis: Overview, Policy Responses, and Implications (PDF)
Source: Congressional Research Service (via U.S. Department of State Foreign Press Center)

The Eurozone is facing a serious sovereign debt crisis. Several Eurozone member countries have high, potentially unsustainable levels of public debt. Three — Greece, Ireland, and Portugal — have borrowed money from other European countries and the International Monetary Fund (IMF) in order to avoid default. With the largest public debt and one of the largest budget deficits in the Eurozone, Greece is at the center of the crisis. The crisis is a continuing interest to Congress due to the strong economic and political ties between the United States and Europe.

Build-Up of Greece’s Debt Crisis
In the 2000s, Greece had abundant access to cheap capital, fueled by flush capital markets and increased investor confidence after adopting the euro in 2001. Capital inflows were not used to increase the competitiveness of the economy, however, and European Union (EU) rules designed to limit the accumulation of public debt failed to do so. The global financial crisis of 2008-2009 strained public finances, and subsequent revelations about falsified statistical data drove up Greece’s borrowing costs. By early 2010, Greece risked defaulting on its public debt.

Policy Responses with Limited Success
EU, European Central Bank, and IMF officials agreed that an uncontrolled Greek default could trigger a major crisis. In May 2010, they announced a major financial assistance package for Greece, and the Greek government committed to far-reaching economic reforms. These measures prevented a default, but a year later, the economy was contracting sharply and again veered towards default. European leaders announced a second set of crisis response measures in July 2011. The new package calls for holders of Greek bonds to accept losses, as well as for more austerity and financial assistance.

These responses have prevented a disorderly Greek default, but the prospects for Greek recovery remain unclear. The economy is contracting more severely than expected, and, as a member of the Eurozone, Greece cannot depreciate its currency to spur export-led growth. Unemployment is close to 16%.

Additionally, the policy responses have not contained the crisis. Ireland and Portugal turned to the EU and IMF for financial assistance. In the summer of 2011, interest rates on Spanish and Italian bonds rose sharply.

Broader Implications
Greece’s economy is small, but its crisis exposes the problems of a common currency combined with national fiscal policies. Additionally, its crisis set precedents for responding to crises in other Eurozone countries; highlighted concerns about the health of the European financial sector; created new financial liabilities for other Eurozone countries struggling debt; and sparked reforms to EU economic governance. It has also revealed tensions among EU member states about the desirability of closer integration.

Issues for Congress

  • Impact on the U.S. economy: U.S. exports to the EU could be impacted if the crisis slows growth in the EU and causes the euro to depreciate against the dollar. Through the first quarter of 2011, growth in the Eurozone was strong, but it may be starting to weaken. There has not been a clear depreciation of the euro against the dollar since the start of the crisis. As the crisis continues, increased perceptions of risk are impacting U.S. financial markets. If the crisis spreads in the Eurozone, the impact on the U.S. economy could be much greater.
  • Exposure of U.S. banks: U.S. banks have little direct exposure to Greece ($7.3 billion), but other potential exposures (derivative contracts, guarantees, and credit commitments) to Greece are much higher ($34.1 billion). U.S. banks are more heavily exposed to Spain and Italy, with direct and other potential exposures totaling nearly $450 billion.
  • IMF involvement: Some Members of Congress are concerned about IMF involvement in the Greek crisis. In 2010, Congress passed legislation aimed at limiting IMF support for advanced economies (P.L. 111-203). In 2011, legislation was introduced in the House and the Senate to rescind some U.S. contributions to the IMF (H.R. 2313; S.Amdt. 501). The Senate voted down this legislation in June 2011.

CRS — Cyprus: Reunification Proving Elusive

August 23, 2011 Comments off

Cyprus: Reunification Proving Elusive (PDF)
Source: Congressional Research Service (via U.S. Department of State Foreign Press Center)

Attempts to resolve the Cyprus problem and reunify the island have undergone various levels of negotiation for over 45 years. Talks between Greek and Turkish Cypriot leaders have thus far failed to reach a mutually agreed settlement leaving the country with a solution for unification far from being achieved and raising the specter of a possible permanent separation.

Since the beginning of 2011, Cyprus President Demetris Christofias and Turkish Cypriot leader Dervis Eroglu have continued the negotiation process even though the talks appear to have increasingly exposed differences and frustrations between the two leaders. Although both sides have intimated that some convergence of views have been achieved in the areas of governance, economy, and EU issues, Christofias and Eroglu have not found common ground on the difficult issues of property rights, security, settlers, and citizenship, areas where both sides have long-held and very different positions and where neither side seems willing to make necessary concessions.

The results of parliamentary elections held in Greek Cyprus in May appear to have had no bearing on the status of the negotiations or the likelihood of a quick agreement. In July an Interpeace initiative, “Cyprus 2015,” released a new opinion poll that seemed to indicate that the current state of negotiations had hardened the political climate on both sides and had created a sense of public discontent that included a growing ambivalence among the Turkish Cypriots and a negative drift toward reunification among undecided Greek Cypriots.

On July 7, 2011, Christofias and Eroglu traveled to Geneva to meet for a third time with UN Secretary-General Ban Ki-moon in another attempt by the UN to boost momentum for the talks. It appears that Ban insisted that the negotiations conclude by October so that an international conference could be held to discuss security issues and that referenda could be scheduled in both the north and south by the spring of 2012. The hope among some is that a reunified Cyprus can assume the rotating presidency of the EU on July 1, 2012.

In mid-July, Turkish Prime Minister Erdogan, on a visit to northern Cyprus, warned that an agreement needed to be achieved by the end of 2011 or the island could remain split and stated that no territorial compromises, including the return of Varosha or Morphou to Greek Cyprus would be acceptable. He also stated that Turkey would essentially freeze its relations with the EU during the Cypriot presidency of the EU if there were no solution to the Cyprus issue because Ankara could not accept the presidency of South Cyprus which it does not recognize. These comments led Cypriot President Christofias to state that there could be no prospect for peace if this was also the position of the Turkish Cypriots.

The United States Congress continues to maintain its interest in a resolution of the Cyprus issue; the lack of a negotiated settlement continues to affect relations between Turkey and the EU, the EU and NATO, and U.S. interests in maintaining a relationship with Turkey that can be useful in addressing many of the issues involving the greater Middle East as well as throughout the Black Sea/Eastern Mediterranean region. Language expressing continued support for the negotiation process has been included in the House FY2012 Foreign Assistance Authorization bill.

This report provides a brief overview of the early history of the negotiations, a more detailed review of the negotiations since 2008, and a description of some of the issues involved in the talks. A side issue involving trade between the European Union and Turkish Cyprus is also addressed.

CRS — Treasury Securities and the U.S. Sovereign Credit Default Swap Market

August 16, 2011 Comments off

Treasury Securities and the U.S. Sovereign Credit Default Swap Market (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

Paying the public debt is a central constitutional responsibility of Congress (Article I, Section 8). U.S. Treasury securities, which represent nearly all federal debt, have long been considered risk- free assets. The size of federal deficits and the projected imbalance between federal revenues and outlays, however, has raised concerns among some. Uncertainties surrounding the debt limit have raised issues related to a hypothetical federal default. Prices for Treasury securities suggest that financial markets consider a federal default unlikely, although credit rating agencies warned of possible downgrades, which could raise borrowing costs and negatively affect capital markets.

A typical credit default swap (CDS) contract specifies that a CDS holder, in exchange for an annual fee set by the market and paid quarterly, can trade an asset issued by a “reference entity” for its par value if a “credit event” occurs. Par, or face, value is the value of a bond at maturity. A corporation or a sovereign government could be a reference entity. A committee of the derivatives trade organization, the International Swaps and Derivatives Association (ISDA), determines if a credit event has occurred, according to their interpretation of applicable guidelines. In general, failure to make a timely payment usually constitutes a credit event.

The cost of buying CDS protection on federal debt for a one-year duration has roughly doubled since the start of 2011. U.S. CDS prices are currently about 54 basis points (one-hundredths of a percent)—slightly lower than for Germany—but much lower than the cost of CDS protection for Greece, Portugal, and Ireland. A CDS contract covering $1,000 of federal debt at a price of 54 basis points (bps) would require annual payment of $54.

Some financial market and federal budget analysts view price trends for CDSs for U.S. debt as an indicator of the market-perceived risks of a default by the federal government. Although CDS prices reflect market assessments of default probabilities, the market for U.S. CDSs is small and thinly traded, which may limit its reliability as a measure of the federal government’s fiscal condition. The notional value of U.S. CDSs is only about 0.5% of publicly held federal debt according to available data sources. In a small and thinly traded market, a few large trades could strongly affect prices.

CDSs may provide a more useful indicator of sovereign default risks for countries with more immediate fiscal challenges, such as Greece and Portugal, where sovereign default risks may be more salient due to higher levels of fiscal stress; or for larger European economies such as Italy and Spain, which have recently come under increased fiscal stress. A sovereign default occurs when a sovereign government is unable to meet its financial obligations. The fiscal situations of several European Union member states, including Greece, Portugal, and Ireland, have raised concerns of policymakers, financial institutions, and investors about wider economic, financial, and political consequences.

This report explains how the sovereign CDS market works and how such CDS price trends may illuminate fiscal stresses facing sovereign governments. Although CDS prices may be imperfect measures of the federal government’s fiscal condition, some investors may try to glean information from those price trends. CDS prices have been playing an important role in the European government debt markets and could potentially affect U.S debt markets in the future. European policymakers have debated certain restrictions on types of sovereign CDS trading, and such calls for reform may be of interest to U.S. lawmakers. This report will be updated as events warrant.

Country Specific Information: Greece

July 10, 2011 Comments off

Country Specific Information: Greece
Source: U.S. Department of State

July 05, 2011

COUNTRY DESCRIPTION: Greece is a developed and stable democracy with a modern economy. Tourist facilities are widely available. Read the Department of StateBackground Notes on Greece for additional information.

Greek Debt – The Endgame Scenarios

April 25, 2011 Comments off

Greek Debt – The Endgame Scenarios
Source: Social Science Research Network

Perhaps Greece – a country with a debt to GDP already approaching 150 percent and set to move even higher – avoids a debt restructuring. Perhaps not.

What are the possible scenarios if Greece cannot return to the capital markets to refinance this gargantuan debt stock once its EU/IMF bailout package expires in two years time? What would a Greek debt restructuring look like after mid-2013? And (sharp intake of breath here) what would happen if such a debt restructuring were undertaken before that point?


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