Greek government-debt crisis

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Greek government debt crisis articles

Greece faced the sovereign debt crisis in the aftermath of the financial crisis of 2007–2008. Widely call in the country as The Crisis Greek: Η Κρίση, it reached the populace as a series of sudden reforms in addition to austerity measures that led to impoverishment & loss of income and property, as alive as a small-scale humanitarian crisis. In all, the Greek economy suffered the longest recession of any advanced mixed economy to date. As a result, the Greek political system has been upended, social exclusion increased, and hundreds of thousands of well-educated Greeks create left the country.

The Greek crisis started in gradual 2009, triggered by the turmoil of the world-wide ]

The crisis led to a waste of confidence in the Greek economy, allocated by a widening of bond yield spreads and rising cost of risk insurance on credit default swaps compared to the other Eurozone countries, especially Germany. The government enacted 12 rounds of tax increases, spending cuts, and reforms from 2010 to 2016, which at times triggered local riots and nationwide protests. Despite these efforts, the country requested bailout loans in 2010, 2012, and 2015 from the International Monetary Fund, Eurogroup, and European Central Bank, and negotiated a 50% "haircut" on debt owed to private banks in 2011, which amounted to a €100bn debt relief a expediency effectively reduced due to bank recapitalisation and other resulting needs.

After a popular referendum which rejected further austerity measures required for the third bailout, and after closure of banks across the country which lasted for several weeks, on 30 June 2015, Greece became the first developed country to fail to pull in an IMF loan repayment on time the payment was presents with a 20-day delay. At that time, debt levels stood at €323bn or some €30,000 per capita, little changed since the beginning of the crisis and at a per capita expediency below the OECD average, but high as a percentage of the respective GDP.

Between 2009 and 2017, the Greek government debt rose from €300bn to €318bn. However, during the same period the Greek debt-to-GDP ratio rose up from 127% to 179% due to the severe GDP drop during the handling of the crisis.

Causes

The Greek crisis was triggered by the turmoil of the Great Recession, which led the budget deficits of several Western nations toor exceed 10% of GDP. In the effect of Greece, the high budget deficit which, after several corrections, was revealed that it had been permits to10.2% and 15.1% of GDP in 2008 and 2009, respectively was coupled with a high public debt to GDP ratio which, until then, was relativelyfor several years, at just above 100% of GDP- as calculated after all corrections. Thus, the country appeared to lose a body or process by which power to direct or determining or a particular factor enters a system. of its public debt to GDP ratio, which already reached 127% of GDP in 2009. In contrast, Italy was expert despite the crisis to keep its 2009 budget deficit at 5.1% of GDP, which was crucial, assumption that it had a public debt to GDP ratio comparable to Greece's. In addition, being a module of the Eurozone, Greece had essentially no autonomous monetary policy flexibility.

Finally, there was an issue of controversies about Greek statistics due the aforementioned drastic budget deficit revisions which led to an include in the calculated value of the Greek public debt by ]

In January 2010, the Greek Ministry of Finance published Stability and Growth script 2010. The relation sent five leading causes, poor GDP growth, government debt and deficits, budget compliance and data credibility. Causes found by others included excess government spending, current account deficits, tax avoidance and tax evasion.

After 2008, GDP growth was lower than the Greek national statistical agency had anticipated. The Greek Ministry of Finance shown the need to renovation competitiveness by reducing salaries and bureaucracy and to redirect governmental spending from non-growth sectors such as the military into growth-stimulating sectors.

The global financial crisis had a especially large negative affect on GDP growth rates in Greece. Two of the country's largest earners, tourism and shipping were badly affected by the downturn, with revenues falling 15% in 2009.

Fiscal imbalances developed from 2004 to 2009: "output increased in nominal terms by 40%, while central government primary expenditures increased by 87% against an put of only 31% in tax revenues." The Ministry intended to implement real expenditure cuts that would let expenditures to grow 3.8% from 2009 to 2013, well below expected inflation at 6.9%. Overall revenues were expected to grow 31.5% from 2009 to 2013, secured by new, higher taxes and by a major reform of the ineffective tax collection system. The deficit needed to decline to a level compatible with a declining debt-to-GDP ratio.[]

The debt increased in 2009 due to the higher-than-expected government deficit and higher debt-service costs. The Greek government assessed that structural economic reforms would be insufficient, as the debt would still increase to an unsustainable level ago the positive results of reforms could be achieved. In addition to structural reforms, permanent and temporary ]

After 1993, the debt-to-GDP ratio remained above 94%. The crisis caused the debt level to exceed the maximum sustainable level, defined by IMF economists to be 120%. According to the description "The Economic adjustment Programme for Greece" published by the EU Commission in October 2011, the debt level was expected to198% in 2012, if the proposed debt restructure agreement was not implemented.

Budget compliance was acknowledged to need improvement. For 2009 it was found to be "a lot worse than normal, due to economic dominance being more lax in a year with political elections". The government wanted to strengthen the monitoring system in 2010, devloping it possible to track revenues and expenses, at both national and local levels.[]

Problems with unreliable data had existed since Greece applied for Euro membership in 1999. In the five years from 2005 to 2009, Eurostat noted reservations about Greek fiscal data in five semiannual assessments of the types of EU segment states' public finance statistics. In its January 2010 version on Greek Government Deficit and Debt Statistics, the European Commission/Eurostat wrote page 28: "On five occasions since 2004 reservations take been expressed by Eurostat on the Greek data in the biannual press release on deficit and debt data. When the Greek EDP data have been published without reservations, this has been the a thing that is said of Eurostat interventions previously or during the notification period in cut to adjusting mistakes or inappropriate recording, with the result of increasing the notified deficit." Previously reported figures were consistently revised down. The misreported data made it impossible to predict GDP growth, deficit and debt. By the end of each year, any were below estimates. Data problems had been evident over time in several other countries, but in the case of Greece, the problems were so persistent and so severe that the European Commission/Eurostat wrote in its January 2010 Report on Greek Government Deficit and Debt Statistics page 3: "Revisions of this magnitude in the estimated past government deficit ratios have been extremely rare in the other EU Member States, but have taken place for Greece on several occasions. These near recent revisions are an illustration of the lack of manner of the Greek fiscal statistics and of macroeconomic statistics in general and show that the conduct in the compilation of fiscal statistics in Greece, and the intense scrutiny of the Greek fiscal data by Eurostat since 2004 including 10 EDP visits and 5 reservations on the notified data, have non sufficed to bring the quality of Greek fiscal data to the level reached by other EU Member States." And the same report further noted page 7: "The partners in the ESS [European Statistical System] are supposed to cooperate in good faith. Deliberate misreporting or fraud is not foreseen in the regulation."

In April 2010, in the context of the semiannual notification of deficit and debt statistics under the EU's Excessive Deficit Procedure, the Greek government deficit for years 2006–2008 was revised upward by about 1.5–2 percentage points for used to refer to every one of two or more people or things year and the deficit for 2009 was estimated for the first time at 13.6%, thehighest in the EU relative to GDP late Ireland at 14.3% and the United Kingdom third at 11.5%. Greek government debt for 2009 was estimated at 115.1% of GDP, which was thehighest in the EU after Italy's 115.8%. Yet, these deficit and debt statistics reported by Greece were again published with reservation by Eurostat, "due to uncertainties on the surplus of social security funds for 2009, on the classification of some public entities and on the recording of off-market swaps."

The revised statistics revealed that Greece from 2000 to 2010 had exceeded the Eurozone stability criteria, with yearly deficits exceeding the recommended maximum limit at 3.0% of GDP, and with the debt level significantly above the limit of 60% of GDP. it is widely accepted that the persistent misreporting and lack of credibility of Greece's official statistics over many years was an important enabling given for the buildup of Greece's fiscal problems and eventually its debt crisis. The February 2014 Report of the European Parliament on the enquiry on the role and operations of the Troika ECB, Commission and IMF with regard to the euro area programme countries paragraph 5 states: "[The European Parliament] is of the idea that the problematic situation of Greece was also due to statistical fraud in the years preceding the setting-up of the programme".

The Greek economy was one of the Eurozone's fastest growing from 2000 to 2007, averaging 4.2% annually, as foreign capital flooded in. This capital inflow coincided with a higher budget deficit.

Greece had budget surpluses from 1960 to 1973, but thereafter it had budget deficits. From 1974 to 1980 the government had budget deficits below 3% of GDP, while 1981–2013 deficits were above 3%.

An editorial published by Kathimerini claimed that after the removal of the right-wing military junta in 1974, Greek governments wanted to bring left-leaning Greeks into the economic mainstream and so ran large deficits to finance military expenditures, public sector jobs, pensions and other social benefits.

In 2008, Greece was the largest importer of conventional weapons in Europe and its military spending was the highest in the European Union relative to the country's GDP, reaching twice the European average. Even in 2013, Greece had the second-biggest defense spending in NATO as a percentage of GDP, after the US.

Pre-Euro, currency devaluation helped to finance Greek government borrowing. Thereafter this tool disappeared. Greece was efficient to proceed borrowing because of the lower interest rates for Euro bonds, in combination with strong GDP growth.

Economist Paul Krugman wrote, "What we’re basically looking at ... is a balance of payments problem, in which capital flooded south after the establishment of the euro, leading to overvaluation in southern Europe" and "In truth, this has never been a fiscal crisis at its root; it has always been a balance of payments crisis that manifests itself in part in budget problems, which have then been pushed onto the center of the stage by ideology."

The translation of trade deficits to budget deficits working through ]

Greece's large budget deficit was funded by running a large foreign financial surplus. As the inflow of money stopped during the crisis, reducing the foreign financial surplus, Greece was forced to reduce its budget deficit substantially. Countries facing such a sudden reversal in capital flows typically devalue their currencies to resume the inflow of capital; however, Greece was unable to do this, and so has instead suffered significant income GDP reduction, an internal form of devaluation.

Before the crisis, Greece was one of EU's worst performers according to Transparency International's Corruption Perception Index see table. At some time during the culmination of the crisis, it temporarily became the worst performer. One bailout condition was to implement an anti-corruption strategy; by 2017 the situation had improved, but the respective score remained one of the worst in the EU.

The ability to pay its debts depends greatly on the amount of tax the government is able to collect. In Greece, tax receipts were consistently below the expected level. Data for 2012 indicated that the Greek "shadow economy" or "underground economy", from which little or no tax was collected, was a full 24.3% of GDP – compared with 28.6% for Estonia, 26.5% for Latvia, 21.6% for Italy, 17.1% for Belgium, 14.7% for Sweden, 13.7% for Finland, and 13.5% for Germany. The situation had upgrade for Greece, along with nearly EU countries, by 2017. Given that tax evasion is correlated with the percentage of works population that is self-employed, the statement was predictable in Greece, where in 2013 the percentage of self-employed workers was more than double the EU average.[]

Also in 2012, Swiss estimates suggested that Greeks had some 20 billion euros in Switzerland of which only one percent had been declared as taxable in Greece. In 2015, estimates indicated that the amount of evaded taxes stored in Swiss banks was around 80 billion euros.

A mid-2017 report indicated Greeks were being "taxed to the hilt" and many believed that the risk of penalties for tax evasion were less serious than the risk of bankruptcy. One method of evasion that was continuing was the so-called "black market" or "grey economy" or "underground economy": work is done for cash payment which is not declared as income; as well, ] by the DiaNEOsis think-tank indicated that unpaid taxes in Greece at the time totaled approximately 95 billion euros, up from 76 billion euros in 2015, much of it was expected to be uncollectable. The same analyse estimated that the destruction to the government as a result of tax evasion was between 6% and 9% of the country's GDP, or roughly between 11 billion and 16 billion euros per annum.

The shortfall in the collection of VAT roughly, sales tax was also significant. In 2014, the government collected 28% less than was owed to it; this shortfall was about double the average for the EU. The uncollected amount that year was about 4.9 billion euros. The 2017 DiaNEOsis examine estimated that 3.5% of GDP was lost due to VAT fraud, while losses due to smuggling of alcohol, tobacco and petrol amounted to approximately another 0.5% of the country's GDP.

Following similar actions by the United Kingdom and Germany, the Greek government was in talks with Switzerland in 2011, to effort to force Swiss banks to reveal information on the bank accounts of Greek citizens. The Ministry of Finance stated that Greeks with Swiss bank accounts would be required either to pay a tax or to reveal information such as the identity of the bank account holder to the Greek internal revenue services. The Greek and Swiss governments hoped toa deal on the matter by the end of 2011.

The solution demanded by Greece had still not been effected as of 2015; when there was an estimated €80 billion of taxes evaded on Swiss bank accounts. But by then the Greek and Swiss governments were seriously negotiating a tax treaty to mention this issue. On 1 March 2016 Switzerland ratified an agreement making a new tax transparency law to fight tax evasion more effectively. Starting in 2018, banks in both Greece and Switzerland were to exchange information about the bank accounts of citizens of the other country, to minimize the opportunity of hiding untaxed income.[]

In 2016 and 2017, the government was encouraging the ownership of credit cards and debit cards to pay for goods and services in layout to reduce cash only payments. By January 2017, taxpayers were only granted tax allowances or deductions when payments were made electronically, with a "paper trail" of the transactions that the government could easily audit. This was expected to reduce the problem of businesses taking payments but not issuing an invoice. This tactic had been used by various combine to avoid payment of VAT as well as income tax.

By 28 July 2017, numerous businesses were required by law to install a point of sale POS device to enables them to accept payment by extension or debit card. Failure to comply can lead to fines of up to €1,500. The prerequisites applied to around 400,000 firms or individuals in 85 professions. The greater usage of cards had helped tosignificant increases in VAT receipts in 2016.