希臘債務危機－肇因及展望 - 政大學術集成

全文

(1)Running head: THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. 國立政治大學外交系研究所碩士論文 Department of Diplomacy, National Chengchi University M.A. Thesis. 政治大. 希臘債務危機－肇因及展望. 立. The Greek Sovereign Debt Crisis: Causes and Future. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. i n C 指導教授姓名：姜家雄 hengchi U. v. Advisor: CHIANG, CHIA HSIUNG 學生姓名：吳家均 Student: WU, CHIA CHUN. 中華民國一零六年三月 March 2017.

(2) THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Acknowledgement After an intensive period of one and a half years, today is the day that I write this note of thanks for my master’s thesis. It has been a period of intense learning for me, not only in the field of international relations, but also on a personal level. Writing this thesis has had a big impact on me. I would like to reflect on the people who have supported and helped me throughout this period.. 政治大. I would first like to give special thanks to my advisor, professor CHIANG, CHIA. 立. HSIUNG. He supported me greatly and was always patient to offer me suggestions. He also. ‧ 國. 學. allowed great freedom with regard to the content of my master’s thesis, and respected all. ‧. perspectives and opinion that I had. I would also like to thank the Department of Diplomacy. Nat. io. sit. y. for offering professional courses that equipped me with knowledge and resources to write this. n. al. er. thesis, as well as the staff of the department for providing me with all administrative assistance I needed.. Ch. engchi. i n U. v. Lastly, I would like to thank my parents for their wise counsel and sympathetic ear. They were always there to encourage me when for several times I encountered great obstacles. Thank you very much, everyone.. WU, CHIA CHUN March 2017.

(3) THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Abstract The world is ever more interdependent both politically and economically. Nations are extensively intertwined that financial crisis in one country or region may emerge as a global economic catastrophe. The European Sovereign Debt Crisis, which involves a series of crises in various member states, perfectly exemplifies the situation. Among the countries that were exposed to crises, Greece is currently at the epicenter, on which the integrality of the. 政治大. Economic and Monetary Union (EMU) hinges. This thesis explores three questions: What. 立. caused the Greek sovereign debt crisis? Why have hundreds-of-billions-of-euro rescue funds. ‧ 國. 學. failed to end the crisis? Will the most recent bailout agreed in 2015 solve the crisis this time?. ‧. This thesis applies a qualitative method, and analyzes information and statistics derived from. Nat. io. sit. y. diverse scholarly works and official documents. Because of the ongoing nature of the crisis,. al. er. there could be no unequivocal predictions of how the crisis would end. However, comparing. n. v i n C there the details of all the bailout packages, is a possibility that the Greek sovereign debt hen gchi U. crisis would continue for at least a few more years. Until now the information on the Greek sovereign debt crisis scatters around different scholarly works. This thesis compiles those information into one piece of study. Moreover, since the mishandling of the crisis could incur devastating effects across the globe and thus there needs to be follow-up research. This thesis also lays the foundation for future studies on the topic..

(4) THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. 摘要現今世界中，國家之間緊密結合已達前所未有之程度，一國或一區域內之小型銀行之金融困境甚有可能瞬間爆發成全球性經濟危機。二零零八年之金融海嘯即為一例證，其影響範圍遍及全球，嚴重程度不在話下。繼金融海嘯後，最為人關注之另一危機非歐洲債務危機莫屬。歐洲債務危機涵括數個歐元區會員國，而至今依舊深陷債務危機中之國家即為希臘。希臘債務危機之處置及發展牽動著整個歐元區未來動向以及. 政治大. 歐元身為全球主要貨幣之一之前景。執事之故，瞭解希臘債務危機有其必要性及迫切. 立. 援助，惟希臘債務危機至今仍尚未解決。. 學. ‧ 國. 性。希臘債務危機自二零零九年爆發至今已邁入第八年，期間亦有數輪紓困案及金融. ‧. 本論文欲探討之問題包括：希臘債務危機爆發之根本原因為何？為何歷經數輪紓. Nat. al. er. io. 陰霾，為希臘債務危機劃下句點？. sit. y. 困案及金融援助後，希臘債務危機依然尚未解除？最新一輪之紓困案是否能一掃過去. n. v i n Ch 由於希臘債務危機本質上仍在發生當中，武斷預測其最終結果不免不切實際。惟 engchi U. 經比較三輪紓困案之細項內容後，仍能推論出第三輪紓困案可能造成之影響，繼而預測希臘債務危機是否得以由此次紓困案解決，抑或於第三輪紓困案後，危機仍將持續發展甚或惡化。現今有關希臘債務危機之研究相當零散，其資訊分散於各項學術著作當中。本論文希冀竭力統整分散於各學術著作中之資訊，撰寫為一有關希臘債務危機完整之著作。.

(5) IV. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Table of Content List of Figures. V. List of Tables. VI. Chapter 1. Introduction. 1. Chapter 2. The Root Causes of the Greek Sovereign Debt Crisis. 19. Background Description Prior to the Outbreak of the Crisis. 政治大. Reasons Causing the Greek Sovereign Debt Crisis. 立. Chapter 3. Reasons the Greek Sovereign Debt Crisis Still Pends. 學. ‧ 國. 23 40 42. Possible Reasons for Failures of the Bailout Packages. 50. ‧. The Root Rescue Funds Distributed Before 2015. Nat. io. sit. y. Chapter 4. Possible Outcomes for the Greek Sovereign Debt Crisis. al. er. The Third Economic Adjustment Programme for Greece. n. v i n C h Economic Adjustment Evaluation of the Third e n g c h i U Programme Possible Endings of the Greek Sovereign Debt Crisis Chapter 5. Conclusion. References. 19. 60 61 67 77 83. Summary of Findings. 83. Implications. 87 90.

(6) V. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. List of Figures Figure 2-1. 21. Figure 2-2. 22. Figure 2-3. 22. Figure 2-4. 23. Figure 2-5. 28. Figure 2-6. 立. Figure 2-7. 29 38. ‧. ‧ 國. 學. io. sit. y. Nat. n. al. er. Figure 3-1. 政治大. Ch. engchi. i n U. v. 44.

(7) VI. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. List of Tables Table 2-1. 30. Table 3-1. 46. Table 4-1. 73. Table 4-2. 76. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v.

(8) 1. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Chapter 1. Introduction Research Background and Motivation International Relations is a relatively young field in political science. Nonetheless, the development of the field of study has been rapid over the past century, due to the fact that nations have been interacting with each other in different fashions and that the foci of international relations have been constantly, sometimes drastically, changing. While earlier. 政治大. theories put more emphasis on political or military aspects, international relations is no more. 立. international trade and finance.. 學. ‧ 國. merely about international politics or military conflict nowadays. In fact, it is also about. ‧. In the first decade of the 21 st century, international financial markets peaked to an. Nat. io. sit. y. unprecedented level in terms of interconnectedness. The world economy is so interdependent. al. er. and intertwined and trade and financial activities between countries are bound so tightly that. n. v i n Cturn a small blunder by a local bank could a trigger h eoutn togbec h i U of a large scale global financial catastrophe. The 2008 global financial crisis certainly fits the category. Originated in the U.S., the crisis eventually amounted to a global financial meltdown, and the lingering effect of which still persists now.. Following the 2008 global financial meltdown, and as the U.S. is seemingly on the road of recovery from the financial devastation, the European sovereign debt crisis is currently one of the most, if not the most, worrisome time bombs in the field of global finance. The crisis’s.

(9) 2. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. lasting effect pounds on the confidence of both the Euro currency and the European Union as a whole. And out of all debt-laden nations, Greece is by far causing the most chaos. Greek sovereign debt crisis broke out first on October 20, 2009, when the central-left political party PASOK won the Greek parliamentary election, and the newly-appointed finance minister George Papaconstantinou unveiled that the government deficit that year would soar to 12.5% of its Gross Domestic Product (GDP), which was well over the. 政治大. Eurozone’s rule of 3%. In February 2010, the overall public debt of Greece was 113.4% of its. 立. GDP, almost double the Eurozone’s rule of 60%. On April 23, 2010, George Papandreou,. ‧ 國. 學. then Greece’s prime minister, officially requested an international bailout, which was. ‧. considered to be the start of the Greek sovereign debt crisis. Since then, the crisis continues to. Nat. io. sit. y. worry the global economy.. al. er. How troublesome is the Greek sovereign debt crisis? To the world economy, if Greece. n. v i n disorderly defaults on its debt, or if C Greece h e leaves i U and resumes its own n g cthehEurozone. currency, both regarded as undesirable scenarios, the loss of confidence in Euro would be tremendous, sending shockwaves to not only Europe but around the global. What is more unfathomable is the possibility that other debtor nations would follow suit defaulting on their debt as well, which would further bring down the Euro and the whole European integration, an unbearable consequence both economically and politically. Meanwhile, the European sovereign debt crisis erupted in not only Greece but also other countries including Portugal,.

(10) 3. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Ireland, Italy, and Spain, collectively dubbed as the PIIGS. Yet, only Greece has been on the edge for such a long time and its sovereign debt crisis so inextricable; Ireland has even gotten out of its crisis already. In contrast, Greece has time and again tendered world-wide anxiety of its solvency problemand even till 2015 we were witnessing a new round of bailout package coming out. Under the circumstances that a Greek default would induce massive damages and enduring ripple effects, the dealing of the crisis undoubtedly deserves close examinations. 政治大. and analyses. It is also intriguing to sort out the major characteristics of the Greek sovereign. 立. debt crisis.. ‧ 國. 學. Research Purpose. ‧. This thesis wishes to fill the void of research on the Greek sovereign debt crisis. It is. Nat. io. sit. y. designed to compile the dispersed information regarding the Greek sovereign debt crisis of its. al. er. root causes and why after years of endeavor the crisis still persists, to analyze whether the. n. v i n C hto envision the possible latest rescue program would work, and e n g c h i U outcomes of the crisis. More specifically, this thesis aims at answering the following three questions: 1.. The causes of the Greek sovereign debt crisis;. 2.. The explanations to why Greece had not escaped the crisis after rounds of rescue plans; and. 3.. The prospect of the third bailout program and the Greek sovereign debt crisis.. Upon discovering the answers for the abovementioned questions, this thesis wishes to.

(11) 4. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. have practical contributions. The contemporary history has never stopped witnessing financial crises on global scale, from the Great Depression in 1929 to the Oil Crisis in 1973, from the Asian Financial Crisis in 1997 to the bursting of dot-com bubble in 2001, and from the Global Financial Crisis in 2008 to the European Sovereign Debt Crisis. The specter of financial crisis still lingers now, and if history is any guide, nor will the world stop seeing other financial crises emerging in the future. Through learning from the past experiences, we. 政治大. stand a better chance preventing future financial crises from happening and, when they do. 立. using the case of the Greek sovereign debt crisis.. 學. ‧ 國. happen, containing and solving them more effectively. This thesis wishes to achieve this goal. ‧. The Greek sovereign debt crisis is unique. It does not involve merely international or. Nat. io. sit. y. domestic factors but both and it is deeply related to the economic integration of the European. al. er. countries. If not taken care of meticulously, the monetary union could be in jeopardy. In the. n. v i n C h countries are U meantime, while other debt-laden European e n g c h i trolling out of their sovereign debt crisis, Greece does not seem to be going anywhere. As a result, it is important that we, which is also the main purpose of this thesis to, study thoroughly the Greek sovereign debt crisis and find out a better way to tackle it. Finding the answers could also be of guides for managing future financial crises and designing integration..

(12) 5. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Literature Review The main points of this thesis’s literature review will be: firstly presenting the views on the root causes of the Greek sovereign debt crisis, secondly gathering official data and documents on the first two economic adjustment programs and locating the reasons the Greek sovereign debt crisis has not yet been solved, and thirdly analyzing the third economic adjustment program and examining the crisis would not end and thus exploring the prospect outcomes of the crisis.. 立. 政治大. The root causes of the Greek sovereign debt crisis. The root causes of the Greek. ‧ 國. 學. sovereign debt crisis can be categorized into two categories: international and domestic.. ‧. There are two main international factors with regard to the root causes of the Greek. Nat. sit. al. er. io. financial crisis.. y. sovereign debt crisis: structural flaws of the European monetary system and the 2008 global. n. v i n C h debt crisis, and the Most studies of the Greek sovereign e n g c h i U European sovereign debt crisis. in a broader sense, accentuate that problems majorly stemmed from the structural defect of the Economic and Monetary Union (EMU). Kouretas and Vlamis (2010) argue that EMU is a monetary union instead of an economic union with a federal budget. The union has its monetary policies set at a supranational level but the power of establishing fiscal policies, such as budgetary or social policies, still lies in the hands of national policy makers, meaning that the EMU did not get to.

(13) 6. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. harness Greece’s spending behavior. Supporting the idea, Overtveldt (2011) also points out that for the member states, the principal disadvantage of joining the monetary union is losing its monetary independence; throughout the crisis, Greece did not have the means to balance its budget by printing money. Lane (2012) name the 2008 global financial crisis as one of the main culprits. The 2008 financial tsunami caused the repatriation of funds and the reassessment of asset values and. 政治大. growth. Greece, as one of the countries that depended on influx of foreign capital and. 立. displayed macro-economic imbalances in Europe, was hit hard. Making things worse,. ‧ 國. 學. Kouretas and Vlamis (2010) also point out that Greece’s major trading partners on the Balkan. io. sit. y. Nat. consequently.. ‧. Peninsula were savaged by the financial crisis, causing Greece to be dragged down. al. er. Meanwhile, there are seven main domestic factors that originated within, though not. n. v i n C h the root causes exclusively seen in, Greece itself concerning e n g c h i U of the Greek sovereign debt crisis.. Kouretas and Vlamis (2010), Featherstone (2011) Macias (2011) and Matsaganis (2012) all talk about Greece’s past of extravagant spending as the deadliest contributing factor that led to the crisis. What lay behind the ruthless expenditure were the public sectors, civil servants, and a social welfare system that were too heavy burden for Greece to bear financially. Greece was.

(14) 7. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. not generating sufficient revenues to support the expenses. Living beyond its means, Greece had been piling up mountains of debt in the first decade of the 21 century. And, according to Lane (2012), the aggregate credibility of Europe was the main reason Greece was able to borrow money abroad with ease and squandered on those items before its own sovereign debt crisis broke out. Excessive government expenditure surely would lead to budget deficit. Yet, if a. 政治大. government has sufficient funding and the capability to sustain its policies, it would not end. 立. up like Greece. In comparison to some Eurozone countries, Greece was not the one with the. ‧ 國. 學. most generous social welfare system. Pointed out by Featherstone (2011), the problem with. ‧. Greece was that it did not have the wealth to spend money in that fashion; there has been an. Nat. io. sit. y. absence of competitiveness and sustained signiﬁcant current account deﬁcits in foreign trade. al. er. and commerce for the Greek economy. Manessiotis (2011) also supports the argument.. n. v i n CEurozone How, then, did Greece enter the h e n gif cit clearly h i Ufailed to meet the standard of. Stability and Growth Pact (SGP)? For the purpose of preventing member states from thoughtless fiscal largesse, the EMU, in the SGP, came up with the regulation that member states should not exceed the fiscal deficit and public debt’s ratio to GDP the level of 3% and 60%. Greece, despite in hindsight never really met the criteria, used blatant balance sheet cosmetics to smart its balance sheet. Dunbar (2003) and Balzli (2010) contend that Goldman Sachs came up with a tailor-.

(15) 8. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. made approach to assist Greece masking its deficit, using cross currency swap to restructure its debt portfolio. Greece essentially borrowed money from Goldman Sachs at a fictional exchange rate but since the mature date was 10 to 15 years away, and the debt was then off the record. In most cases, tax is the core source of revenue for government budget, and the act of tax evasion largely weakens a government’s solvency of foreign debt and administration efficiency.. 立. 政治大. Jin (2012), Featherstone (2011), and Katsimi and Moutos (2010) raise the problem of. ‧ 國. 學. prevalent tax evasion in Greece as a huge problem that has been draining Greece’s coffer. Tax. ‧. evasion takes a huge toll on Greece’s government revenue and it is something that people. Nat. n. al. Corruption and clientelism1. er. io. everyone in the country and many key private sectors do it.. sit. y. could discuss publicly without having to worry about being caught or fined, since almost. v i n inC thehGreek politics ihasU e n g c h been allegedly rampant.. Featherstone (2011) contends that corruption essentially thwarts a large number of initiatives in the realm of pension, health and labor market systems. According to Jin (2012), the total sum of bribery reaches around 20 billion euros on an annual basis, almost the equivalence of 8% of Greece’s national GDP. Katsimi and Moutos (2010) emphasize that rent-seeking is endemic phenomenon in Greece that leads to. 1. The term is defined as giving material goods in return for electoral support in The Oxford Handbook of Comparative Politics, edited by Carles Boix and Susan C. Stokes..

(16) 9. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. governmental incompetence. Macias (2011) talks about that a high degree of government control over numerous sectors of the economy through state-owned banks and industries is ascribable for the nation’s lack of growth. Also, the staff of the state-own businesses enjoyed the privilege of stable and secure employment, meaning that the government had to spend bigger chunks of the budget on paying these people and their families.. 政治大. As reported by Kouretas and Vlamis (2010), the Greek bonds issued in the past are. 立. maturing during the period of 2010 to 2019. As the amount of debt piling up and the pay-back. ‧ 國. 學. dates looming, investors are requiring higher and higher interest rates in order to lend new. io. sit. y. Nat. suffer.. ‧. money to Greece, and so the economically weak and already debt-laden Greece continues to. al. er. Reasons the Greek sovereign debt crisis still pends. Six years have passed since the. n. v i n Greek sovereign debt crisis emergedCtohthe surface at the U of 2009. Greece, however, is e n g c h i end. still struggling. To be sure, necessary measures had been taken to fix the problem. Yet, one can still contend that danger is far from over and the situation in Greece is still volatile. Why has the crisis not been contained? Why there still needed to be a third round of rescue plan after two rounds of failed attempts? The reasons that the crisis is still inflicting enduring pain on Greece in spite of the last two bailout packages could be concluded as follow. The most debated reason that the sovereign debt crisis, not only of Greece but of Europe.

(17) 10. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. in a broader sense, has been so tenacious is that the Troika2 never attempted to fix the systematic flaw of its structure: the EMU is not a complete design. It is a monetary union without coordinated fiscal policies and budget, and if that structural problem is not disposed of, sovereign debt crises would never come to an end. Overtveldt (2011) and Monastiriotis (2011) both share this idea. Moreover, Sinn (2014) speculates that the bailout prescription was ill-designed to solve. 政治大. Greece’s true problems. He believes that the economic adjustment programs were not the. 立. precise therapy for the Greek financial disorder. Rather, the cause of Greece’s illness rooted. ‧ 國. 學. in the competitiveness problem. To put it simply, Greece’s problem was not its liquidity, but. ‧. solvency. The funds offered to Greece in the economic adjustment programs, on the contrary,. Nat. io. sit. y. ended up providing merely liquidity to Greece while adding new debt on Greece’s balance. n. al. er. sheets. Monastiriotis (2011) accuses Troika for having parochial sights, having to intention to. Ch. reform the Greek economy and stimulate growth.. engchi. i n U. v. Meanwhile, Monastiriotis (2013) argues that the international incoordination, such as the fact that Europe’s de facto central back, the European Central Bank (ECB), occasionally rejected Greek sovereign bonds as collateral for liquidity provision to commercial banks in Greece, riles the Greek recovery. While it is indeed almost impossible to find out where exactly the bailout funds for. Currently, when talking about the Troika, one refers to a decision group formed by the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF). 2.

(18) 11. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Greece eventually ended up being, it is not an overstatement that the money has not been spent the most wisely. Chamley and Pinto (2011) point out that the large chunk of the funds injected into Greece did not guarantee future surge in net present value (NPV). In other words, the money does not generate future revenue. Abboushi (2011) also supports the idea. Jin (2012) and Featherstone (2011) bring up the probability that the labor unions were the obstacles of reformation. They oppose privatization processes and social welfare system reforms.. 立. 政治大. Featherstone (2011) further suggests that due to poor coordination and trust among. ‧ 國. 學. sectors, the Greek government’s lack of implementational strength, which leads to inadequate. io. sit. y. Nat. packages.. ‧. budget control, employment law reformation, etc., contributes to subpar performance of the. al. er. In resonance, Zahariadis (2012) points to the fact that the government merely cared. n. v i n Cconducting about minimizing political cost when h e n g creforms. h i UCosts for full implementation of the measures were excessive and so targets were constantly missed. In order to study how the Greek government utilizes the funds provided in the adjustment programs, the thesis also capitalizes on Greece’s Ministry of Finance monitoring result paper from its official website; the reviews were done by the European Commission (EC) and the International Monetary Fund (IMF). The occasional papers and reviews could serve as references as how the economic adjustment programs were carried out and as to why.

(19) 12. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Greece has not gotten out of the economic quagmire. Ardagna and Caselli (2014) identify the rigidity of the bailout program to be the cause for Greece still mired in the sovereign debt crisis. They claim if the terms of the packages were more generous, it would have led to a better outcome for Greece. To be more precise, they specify that the terms need to give the Greek debt later maturity dates, apply lower interest rates, and in essence lower the NPV of the principal.. 政治大. Piketty, Sachs, Flassbeck, Rodrik, and Wren-Lewis (2015) advocate for what Germany,. 立. currently the most potent craftsman of the Greek bailouts and austerity measures, received. ‧ 國. 學. after the WWII: debt write-offs. They argue that the debt waiver Germany got was the sole. ‧. reason it went back on track and paid back the debt in a short time. They think that Germany. Nat. al. er. io. better way to sort out the Greek problem at the end.. sit. y. should remember this history and stop imposing brutal austerity on Greece, which would be a. n. v i n C (2013) On the other hand, Monastiriotis that, also taking into account the h e ncriticizes gchi U. opinion of scholars such as Paul Krugman, austerity measures are in nature stopping an economy from going forward. Also mentioned was Troika’s erroneous prediction of the Greek future inflation rate and underestimation of the fiscal multipliers when the austerity recipes were ordered to Greece. Christodoulakis (2013) agrees that the miscalculation of the fiscal multipliers caused the Greek economy to recede. Monastiriotis (2014) provides supporting evidence in another of his article. Although the.

(20) 13. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. scholarly piece aims more in general at arguing that austerity almost always fails, he includes statistics on the Greek situation that Greece’s economic growth was essentially dragged down by the austerity measures, for factors the craftspeople of the measures absent-mindedly failed to take into consideration. The abovementioned four factors that led to the ineffectiveness of the efforts made so far: missing targets, incomplete implementation of the measures, too-stringent terms, and the. 政治大. austerity-induced recession, clearly failed to address the root causes that started the crisis.. 立. Greece has not yet escaped the crisis.. 學. ‧ 國. These are the mistakes made by the first two rounds of rescue plans and are the reasons that. ‧. Possible outcomes for the Greek sovereign debt crisis. Through comparing the. Nat. io. sit. y. content of the third economic adjustment program to the previous two rounds and analyzing. al. er. whether the third bailout would avoid the mistakes the previous two bailouts made, missing. n. v i n targets, incomplete implementation C of h the measures, too-stringent e n g c h i U terms, and the austerityinduced recession, and thus failed to lead Greece out of the crisis, the future of the third bailout could be predicted to some degree.. Up to now, regardless whether the third round of bailout would function as expected or not, there are various speculations with regard to the possible endings of the Greek sovereign debt crisis. Kouretas and Vlamis (2010) and Monokroussos, Stamatiou, and Gogos (2015) mention.

(21) 14. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. the possibility of Greece continuing staying in the Eurozone, along with reforms for both Greece and the monetary union structure. This scenario prevents contagion throughout the Eurozone and the world market as a whole, circumventing the expected devaluation of the euro, shuns dangerous bank runs, and avoids a Greek default. And, in Overtveldt’s (2011) opinion, in this scenario, there are two outlooks: one being that everything remains exactly the same, with the creditor countries carrying on lending Greece capital, and the other being. 政治大. that a structural reform occurs, in the hope of taking down the problem from the core.. 立. In contrast, Alcidi, Giovannini and Gros (2012), and Roubini (2011) state that there. ‧ 國. 學. should be a “Grexit”, meaning that Greece should leave the Eurozone. This, if happens. ‧. orderly, would render Greece back to its old currency, the drachma. Although, they argue, in. Nat. io. sit. y. the short term there could be malign devaluation of the currency, thus engenders the falling in. al. er. its asset value, the increase in debt amount, vicious inflation and recession, bank runs, and. n. v i n C haccess, or even defaults, imminent denial to the external market e n g c h i U in the long run Greece will go back on track. Research Questions Every financial crisis has its own characteristics. Some pound harshly on a country’s economy while some gradually chip away at a country’s economic strength; some last longer periods while some exist only temporarily. The actors involved, in the meantime, apply different counter-measurements to the dealing of the crises..

(22) 15. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. The main goal of this study is to compile information on and analyze the Greek sovereign debt crisis. This research intends to examine three specific questions: 1. What are the causes for the Greek sovereign debt crisis? 2. The Greek sovereign debt crisis persists despite a number of efforts have been taken and why has the measures have not been able to stop the crisis.. 政治大. 3. How will the Greek sovereign debt crisis pan out? Will there be more bailout plans. 立. coming out?. ‧ 國. 學. Research Methodology. ‧. Qualitative analysis route will be adopted in this study. In other words, the data that is to. Nat. io. sit. y. be analyzed in the thesis is text, instead of numbers. Qualitative analysis aims at describing,. al. er. explaining, or predicting the phenomena of our real world (Patton, 1990); implementing. n. v i n C h to see the realityUbehind the numbers ensuring the qualitative analysis allows for the readers engchi fruitfulness of a real social experience. To be more precise, the method of document analysis would be applied to this study. Document analysis, for the purpose of doing research on a particular topic, uses a variety of materials, including official reports such as books, journal articles, and other documents to gather, analyze, and extract necessary information and thus prove or overthrow a hypothesis. When using this method, the documents are required to be accurate and reliable. For instance,.

(23) 16. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. official documents usually are composed with objectivity, stating the facts and data without personal opinion. However, there could still be risk of official documents being biased or documenting only partial facts. This thesis plans to gather as much information as possible, from books, journals, and theses, take the valid parts, analyze them, and apply them into the study. When reviewing, it is important to gather the information from a wide range of sources in order to be sufficiently. 政治大. inclusive and unbiased. Meanwhile, not only do the sources need to be reliable, the content. 立. within the documents also need to be accurate as well. On that score, official documents and. ‧ 國. 學. journals from more well-known institutes and think tanks would constitute the bigger chunk. al. er. io. This thesis will include five chapters.. sit. y. Nat. Chapter Layout. ‧. of the literature reviews in this thesis.. n. v i n C h briefly stating The first chapter will be the introduction, e n g c h i U the motivation and the purpose for this study. Then there will be the literature review, thus laying out the research questions, the research methodology, the structure of the thesis, and the scope and limits of the study. The second chapter endeavors to analyze the root causes of the Greek sovereign debt crisis. Starting from 2000 when Greece joined the Eurozone, to 2009 when the crisis broke out, locating the triggers of the financial catastrophe, and categorize them into two levels of analysis: international and domestic..

(24) 17. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. The third chapter discusses what makes Greece still debt-laden after two rounds of bailout programs, using official statistics and reviews of the programs, and find out why there still needed to be a third financial assistance. The fourth chapter examines, using the history as lessons, whether or not the third bailout program will function to a better extent, if not entirely eradicating the crisis, than its predecessors. If not, what is lacking? Has it not amend the glitches in the previous two rescue. 政治大. programs? And what would be the possible outcomes for the crisis in the future?. 立. The last chapter will be the concluding remarks, produced at the end to sum up the. ‧ 國. ‧. Scope. 學. study.. Nat. io. sit. y. The aim of this thesis is to purely focus on causes of the Greek sovereign debt crisis and. al. er. why the crisis has not seen its end and the defects of the efforts that had been done, and to. n. v i n C h at ending the crisis analyze the feasibility of the third bailout e n g c h i U and the possible finale of the crisis with objectivity. It does not wish to provide any absolute predictions or definite solutions for the future. This thesis does not intend to dig too deeply into Greece’s history, like many scholarly pieces do when analyzing the Greek sovereign debt crisis (some scholars date the crisis back to the Greek political system and culture hundreds of years ago, for example) but to concentrate solely on the period between 2009 and 2016. Events that happen after 2016 will.

(25) 18. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. not be included in this thesis. Nevertheless, when locating the root causes of the crisis, facts from the year 2000 when Greece entered the Eurozone also need to be taken into consideration. Limitations Concerning the topic this thesis is researching on, there are time and technical limits. In terms of time limits, on the one hand, the Greek sovereign debt crisis is still going on. 政治大. and, while touching upon the possible outcomes of the crisis, it is not the intention of this. 立. thesis to make an absolute prediction about what the future of the Greek sovereign crisis. ‧ 國. 學. might appear to be. Therefore, this study sets the duration between 2009 and 2016. On the. ‧. other hand, due to the fact that the crisis is merely a few years old, there have not been. Nat. sit. al. er. io. as references.. y. specific books on the issue. Consequently, scholarly pieces and journals are more often used. n. v i n In terms of technical limits, theCGreek h e language n g c hisinotUa familiar language of the writer,. so important information written in Greek may not be included and thus missed. Fortunately, various scholars and organizations have published journal articles in English. Necessary information with regard to the issue is available and would not influence the validity of this thesis..

(26) 19. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Chapter 2. The Root Causes of the Greek Sovereign Debt Crisis Background Description Prior to the Outbreak of the Crisis Over the past century, never have we stopped seeing financial crises taking place, from the 1929 Great Depression to the two Oil Crises in the 1970s to the Asian Financial Crisis in 1997 to the 2008 Financial Tsunami. The European Sovereign Debt Crisis broke out after the 2008 Financial Tsunami, which involved Portugal, Italy, Ireland, Greece, and Spain, dubbed. 政治大. collectively as the PIIGS countries. Yet, an end for the Greek sovereign debt crisis remains. 立. nowhere in sight in the near future. Should Greece default on its debt or leave the Eurozone,. ‧ 國. 學. the ambitious European integration that is based on neoliberalism would lose face. It could. ‧. also set a precedence of a Eurozone member state defaulting, a precedence that might trigger. Nat. io. sit. y. other debtor states to follow Greece’s step and default on their debt. Should that happen, it. al. er. would be a fatal blow to the prestige of the Eurozone and the Euro. Therefore, it is crucial to. n. v i n Cthe understand why the crisis emerged in and how the crisis had been panning out h efirstnplace gchi U afterwards. Ironically, the Greek people were the first to invent bonds. In the 21st century BCE, Greece came up with the concept of bonds to borrow and raise money. Nevertheless, due to the extravagant nature of its culture and the subsequent wars between confederates which lasted for an extended period of time, the Delian League members defaulted on the debt together. Centuries later, we are witnessing the Greeks defaulting once again..

(27) 20. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. The outbreak of the Greek sovereign debt crisis could be dated back to 2009. In the autumn of 2009, the Panhellenic Socialist Movement, a socialist party more widely known as PASOK which just got elected at the time, announced that the ratio of Greece’s fiscal deficit to GDP and public debt to GDP had in fact reached 12.5% (later revised several times from 12.5% to 12.7%, 13.6%, and eventually to 15.4%) (Matsaganis, 2012) and 113.4% respectively, abhorrently surpassing the requirements set in the SGP of 3% and 60%. On. 政治大. November 23, 2009, then Prime Minister George Papandreou authorized then Finance. 立. Minister George Papaconstantinou to conduct an overhaul of the country’s budget and tax. ‧ 國. 學. system, slashing budget deficit for the year from 12.7% (then estimation) to 9.1%. This move. ‧. prompted waves of attacks from vulture funds on the Greek stock market, rendering. Nat. io. sit. y. Papandreou having no choice but to ask for an international bailout. The downgrades by three. al. er. world’s largest credit rating agencies, Standard & Poor’s, Moody’s, and Fitch, did not come. n. v i n C hof the Euro againstUthe US dollar. The downgrades long after, causing severe depreciation engchi. marked the beginning of the Greek sovereign debt crisis. Nonetheless, the downgrades did not come out of the blue. Arghyrou and Tsoukalas (2007) claim that as early as 2007 when the Financial Tsunami was emerging, the spread between Greece and German bonds was already quietly widening. Figure 2-1 reveals that since 2007 the spreads on 10-year Greek bonds relative to 10-year German bonds started to go up from less than 1% to almost 16% at the peak..

(28) 21. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Source: Nelson (2012, p. 376). 治政 Figure 2-1. Greek Bond Spread (1993-2011) 大立 ‧ 國. 學. In order to contain the rapid spread of fear on a Greek default, Papandreou from January to March 2010 announced two rounds of radical austerity measures, which, unfortunately,. ‧. triggered nothing but a mass protest on February 24, 2010. Bringing things from bad to worse. sit. y. Nat. io. n. al. er. as a result of the downgrades, it became more difficult for Greece to borrow money as it. i n U. v. usually did in order to pay back its debt and support its excessive government spending.. Ch. engchi. Figure 2-2 shows that the rating agencies’ outlooks on the Greek bonds displayed no sign of optimism. Since the second half of 2008, Greek bonds were gradually rated less and less valuable, from AA to BBB- by R&I, from A+ to BB+ by Moody’s, and from A to BBB- and BB+ relatively by Fitch and S&P. After the crisis broke out, even at a higher cost, Greece still needed to borrow money, and Greece’s national debt kept piling up..

(29) 22. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Source: Public Debt Management Agency (2010). 政治大. Figure 2-2. Greek Bonds Ratings (1997-2010). 立. By February 2010, Greece was estimated to have racked up a total debt of 294 billion. ‧ 國. 學. euros, approximately the equivalent of 145% of its GDP that year (See Figure 2-3). Making. ‧. things worse, 54 of 294 billion euros of debt were maturing by May that same year (Walsh,. Nat. n. al. er. io. sit. y. 2010), imposing colossal pressure on Greece.. Ch. engchi. i n U. Source: Lane (2012, p. 51) Figure 2-3. The Evolution of Greek Public Debt (1982-2011). v.

(30) 23. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Source: Made by the author. 立. 政治大. ‧ 國. 學. Figure 2-4. Timeline of the Greek Sovereign Debt Crisis (2009-2015) Reasons Causing the Greek Sovereign Debt Crisis. ‧. A number of reasons caused the Greek sovereign debt crisis. Those reasons can be. sit. y. Nat. io. n. al. er. divided into two categories: exogenous and endogenous.. i n U. v. Exogenous factors. With regard to the international factors for the Greek sovereign debt. Ch. engchi. crisis, there are the structural flaws of the Economic and Monetary Union of the European Union (EMU), and the 2008 Financial Tsunami. Structural flaws. In a number of studies about the Greek sovereign debt crisis, and the European sovereign debt crisis in a broader sense, the structural defect of the EMU is considered to be one main culprit. Regarding this issue, one could observe from three aspects: the equal easiness to acquire capital for every country, the absence of monitoring power for the EMU, and the lack of monetary tools for member states..

(31) 24. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. The purpose of the monetary integration is to guarantee economic development by avoiding foreign exchange rate volatility and encouraging the flow of factors of production, including capital. The EMU is, nevertheless, an unfinished product. While the ECB, holds in entirety the monetary policy making power, the member states still make their own fiscal policies independently. In reality, all EMU member states used a uniform exchange rate of the Euro, so it was as effortless for economically weak countries to borrow money as the healthy. 政治大. ones. For example, the structural design of the EMU made it excessively easy for Greece to. 立. reach out for capital. In the first decade in the 21st century, the interest rates that Greece faced. ‧ 國. 學. were similar to those faced by Germany (De, 2009). These lower interest rates allowed. ‧. Greece to borrow money much more easily than before 2001, fueling an increase in spending.. Nat. io. sit. y. This was because although the economic strength among the member states were obviously. al. er. uneven, since they all used Euro they enjoyed the same borrowing conditions. Lenders did. n. v i n not care that much either; they lent C Greece U were lending money to Germany, h emoney n g cashifithey with the expectation of being paid back on time, both principals and interests. Yet, the truth was, over the course of 2003 to 2010, Germany’s GDP was ten times the size of Greece so it was not at all the same to lend money to Greece and thought it would have the capacity to pay back on time like Germany would. With rampantly available capital, Greece had no concerns leading a lavish life. At the same time, there was no monitoring mechanism for the EMU to overlook or.

(32) 25. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. control member states’ spending behaviors. So as ruthlessly as Greece had spent its money before the crisis broke out, without consolidated fiscal policies or a fiscal union, there was nothing the EMU could have done. The lack of solidarity funds at the EU level, such as the federal budget in the U.S. that facilitates economic policies and incorporates budgetary policies, wage policies, social policies, credit regulations, and so on, brought about the situation where euro member states could spend money at will without being scrutinized; the. 政治大. power of making policies still lies in the hands of national policy makers. Whenever a crisis. 立. crisis at the EU level (Kouretas, 2010).. 學. ‧ 國. occurs in the Eurozone, there are no adjustment mechanisms in place to deal with such a. ‧. Making matters worse, even after realizing there existed problems within their. Nat. io. sit. y. economies, the troubled member states did not possess the capability to wield monetary. al. er. policies. The logic of monetary policies is that the devaluation of a currency props up exports. n. v i n C h often applied U and hence stimulates the national economy, e n g c h i by countries to stave off economic hardships (Van, 2011). Joining the Eurozone implies the forfeiture of wielding monetary policies as a tool for economic adjustment. In usual situations, when a country confronts excessive debt or negative cash flow, it applies monetary policy tools such as currency. devaluation to combat fiscal crisis. Nonetheless, once a country enters the Eurozone, it loses that device; all it is left at hand is fiscal policies. Greece started out spending more than it could afford, and when it realized that it was running a whopping budget deficit and that.

(33) 26. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. there was no margin to wield monetary policies, it was left at the mercy of expansive fiscal policies and loans from other countries or institutions. That was also why we saw the Greek budget deficit and public debt growing larger and larger as the crisis unwound. According to Stiglitz (2016), three mechanisms for a slumping economy to resume full-employment are lowering interest rates, lowering exchange rates, and wielding fiscal policies. Yet, the common currency took the first two options off the table for Greece. While the third, the use. 政治大. of fiscal policies, remained an option, the convergence criteria set in the SGP, though. 立. constantly breached as previously broached, essentially limited its effectiveness.. ‧ 國. 學. The 2008 Financial Tsunami. Another crucial factor that triggered the Greek sovereign. ‧. debt crisis was the 2008 Financial Tsunami. To be sure, at the start of the Financial Tsunami,. Nat. io. sit. y. there was no attention paid to the European Sovereign Debt Crisis. As a matter of fact, there. al. er. were even expectations that the ECB could address the global financial shock. It was not till. n. v i n the Financial Tsunami had unfoldedC forha while and investors e n g c h i U had become rather risk-averse. and started reassessing investments and retrieving capital that the world directed its focus to the Eurozone. True, there was a counterargument that shoved all responsibility of the disasters to the subprime crisis. Nevertheless, it was unfair and rather like saying the First World War was entirely caused by the assassination of Archduke Franz Ferdinand in Sarajevo in 1914. Given the state of the financial system, if the subprime crisis had not emerged as the black swan, something else would have. If another case scenario were happening, the overly.

(34) 27. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. debt-laden Greece would still confront a debt crisis. It was just a matter of when and how (Bootle, 2012). Yet, the Financial Tsunami did galvanize waves of repatriation of funds and the reassessment of asset prices and growth, especially those in the Eurozone peripheries. Countries that depended heavily on foreign capital, such as Greece, whose external debt to its GDP was a scary 172% in 2009, confronted severe impact (Dias, 2010). Fairly speaking, Greece was not the only country that was closely watched after the. 政治大. Eurozone got into trouble; Spain, Ireland, Italy, and Portugal were under scrutiny as well. Yet,. 立. after Greece struck the world by revealing its shocking debt and deficit level, and more so. ‧ 國. 學. after it officially asked for financial rescue in 2010, the spread between bond yields of Greece. ‧. and other Eurozone member states started to diverge (Lane, 2012). Not only had it become. Nat. io. sit. y. ever more arduous for Greece to borrow money, the cost of borrowing had also gone up. al. er. crazily. The 2008 Financial Tsunami catapulted Greece to a position in dire needs of capital. n. v i n C h to have access yet also rendered it considerably challenging e n g c h i U to capital. Figure 2-4 indicates. the Greek ten-year bond yields from 2008 to 2012. It took a while for the bond yield to rise, but after the official announcement for financial demand in 2010, it began to soar, reaching its peak at almost 50% in 2012. One can realize how painful and expensive it had been during that period for Greece, which deepened fears for a Greek default..

(35) 28. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. 政治大. Source: Trading Economics, Greece, Markets, Government Bond 10Y. 立. Figure 2-5. Greece 10-Year Government Bond Yield (2008-2012). ‧ 國. 學. This is not to refer that the Greeks had no wrongdoings in themselves. Out of all 19. ‧. member states then in the Eurozone, only five were caught in severe financial crises, and only. Nat. io. sit. y. Greece still remains seriously mired in its economic turmoil. It is true that there have been. al. er. hereditary differences in economic strength between the countries, yet we can still conclude a. n. v i n C h sovereign debt crisis number of domestic causes for the Greek e n g c h i U as well.. Endogenous factors. There are six domestic factors that caused the Greek sovereign debt crisis. The extravagant spending behavior. Intuitively, if expenditure outnumbers revenue, one gets in debt. This is essentially what the Greek government had been doing prior to the eruption of its sovereign debt crisis. Budget deficit occurs when revenue could not support expenditures. The Greek.

(36) 29. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. government was running a constant budget deficit for an extended period of time. Even a decade before the crisis broke out, there had not been budget surplus. Moreover, since 2005, things took a turn for the worse. As Figure 2-5 shows, Greece’s budget deficit grew to almost 16% in 2009.. 立. 政治大. ‧ 國. 學. Source: Trading Economics, Greece, Government, Government Budget. ‧. Figure 2-6. Greece Government Budget Deficit (1996-2015). sit. y. Nat. io. n. al. er. Matsaganis (2012), and Nelson, Belkin, and Mix (2011) all attribute the reckless. i n U. v. spending behavior of the Greek government to be one major contributing factor for the Greek. Ch. engchi. sovereign debt crisis. By and large, the most criticized fact about Greece’s budget plans is that a great chunk of it went to the public sectors, civil servants, and a social welfare system. Salary for civil servants was estimated to be around three times higher than that of private company employees. Even when Greece received multiple rounds of financial rescue, a great part of the bailout funds still went to pensions and social welfare (Jin, 2012). Scholars estimate that in 2009, 50% of Greece’s GDP went to government expenditures, of which 75% went to public sector wages and social benefits (Nelson, 2011). The estimation is.

(37) 30. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. predominantly accurate. In light of OECD Stat’s database (OECD.Stat), between 2003 and 2010, the proportion of annual central government budget being allocated to health and social policy, which involved health, welfare, pensions, employment, and social policies, kept going up on a yearly basis. As Table 2-1 suggests, not only did health and social policy take up great percentage of the overall annual budget, the number of which was also on the up trend in those years.. 政治大. Table 2-1. Greece’s Social Welfare to Annual Budget Ratio (2003-2011) 2003. 18.9%. 20.4%. 2006. 2007. 2008. 20.4%. 20.6%. 21.4%. 23.7%. 2010. 2011. 23.8%. 25.9%. ‧. Source: OECD.Stat, Social Expenditure – Aggregate Data. 2009. 學. Spending 19.0%. 立 2005. 2004. ‧ 國. Year. Nat. io. sit. y. In addition, using statistics from Elstat’s 2010 press report, Matsaganis (2011) suggests. al. er. that pensions constituted the “backbone” of Greece’s social protection network, providing the. n. v i n C h income. TheUproblem raised was that the huge average households 24.1% of their disposable engchi amount of money spent was not spawning palpable feedbacks to the economy. At the same time, the force formed by the sizable population of civil servants made. reforms of the system an arduous task for the government, constituting the reason the budget instilled had not been winding down. Using the data from Greece’s Ministry of Finance official website, the lump sum of the budget given to the wage of the public sector grew from 31 billion euros in 2003 to the peak of around 43 billion euros in 2007. Even after the crisis.

(38) 31. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. broke out, in 2009 and 2010 the numbers were still at a surprisingly high level of 28 billion and 30 billion euros. And as can be seen in Table 2-1, the percentage ballooned since 2008 mainly because of the withering GDP in those years due to the debt crisis. Also, one intriguing fact revealed in a Wall Street Journal Article (Moffett and Granitsas, 2010) says that the EC estimated “the administrative burden of Greece's bureaucracy—the value of work devoted to dealing with government-imposed administration—is equivalent to 7% of GDP, twice the EU average.”. 立. 政治大. One major cause for Greece to have such a massive army of civil servants relates to the. ‧ 國. 學. state control of the economy (Macias, 2011). Since the 1970s, poor economic policies have. ‧. been bewildering the Greek economy. One of the main factors, which is also what has been. Nat. io. sit. y. exacerbating the prolonged budget deficit, is the high degree of government control over. al. er. numerous sectors of the economy through state-owned banks and industries.. n. v i n C h uses salaried income Astonishingly, Monastiriotis (2011) e n g c h i U data from the Greek Labor. Force Survey and data on salaried and total household income from the Greek Household Budget Survey (HBS) and finds out that before the crisis, “the public sector accounted for close to 20% of total disposable household incomes in the country, while another 20% was accounted for by pensions.” That means around 40% of household expenditure was paid for by the government. With the good and bad nature of state-controlled economy, there has been extensive.

(39) 32. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. debates about how deeply involved the national government should be in regulating the national economy and which industrial sectors should be reserved exclusively for state ownership (Megginson and Netter, 2001). It is a matter that concerns the historical argument between laissez-faire and non-market economy. Although it is believed that some industries should be at the helm of the government, the problem with Greece’s economy is that for too long its government has been in charge of too many economic sectors. In 1965, Greece’s. 政治大. state control of the economy, mainly through state own enterprises (SOEs) or credit control. 立. via banks, amounted to more than 90% of the overall economy. After rounds of reform, the. ‧ 國. 學. first of which started in 1990, the state still controlled approximately 75% of all business. ‧. assets in the country and tightly regulated other sectors of the economy. Even though the. Nat. io. sit. y. number fell to about 50% in 2008, it was still a big proportion (Mouzelis, 1979).. al. er. The excessive social expenditure and the non-competitive economy. Whether the. n. v i n C h or not is a relative spending behavior of a country is excessive e n g c h i U concept. The way the Greek government spent the money, or in particular, on Greece’s welfare system, was not the most prodigal in comparison to some European countries. Percentage wise, Greece’s ratio of social spending expenditures to GDP were 10.3% in 1980, 19.2% in 2000 and 25.7% in 2011, whereas that for Germany during the same period of time they were 21.8%, 26.2% and 25.5%, larger than Greece in size (OECD.Stat). Even at the peak of the crisis in 2011, Greece was below the EU average of 29.1% in social expenditure (Eurostat Press Office, 2013). Yet,.

(40) 33. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. it certainly has not been able to fund itself. For instance, the revenue for Greece’s national railway system was estimated to be 100 million euros while the expenditure amounted to 700 million. Manessiotis (2011) adds to the criticism that there has been a continuous worsening of the Greek economy competitiveness after the EMU entry, and that Greece entered the EMU without adequate preparation and stumbled into both the debt and competitiveness traps. Featherstone (2011) pointed out that Greece simply did not have the wealth to spend. 政治大. money the way it has done over the past decades and there has been an absence of. 立. competitiveness in its economy. To this facet, one needs to look at the Greek economic. ‧ 國. 學. structure first.. ‧. According to World Bank’s data, Greece’s GDP averaged approximately 303.67 billion. Nat. io. sit. y. USD between 2005 and 2010 (247, 273, 318, 354, 330, 300 billion USD in respective years).. al. er. In 2014, the economy of Greece was ranked by size as 44th by the IMF, 45th by the World. n. v i n by the United Nations inC thehworld, and the i15 Uof all European Union member engch. Bank, 46th. th. states. Greece is certainly not a big economy. Moreover, service industry constituted the greatest chunk of the Greek already small economy. Data reveals that the percentage of services industry of Greece’s GDP from 2005 to 2010 was respectively 75.4%, 73.8%, 76.2%, 79.1%, 79.9%, and 81.1% (The World Bank Data). The major share of the service industry is comprised of financial service and trade, at 21.5%, with tourism, which is volatile and subject to seasonal changes, at around 18% and.

(41) 34. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. real estate management at around 14%. Advanced industry and agriculture are usually symbols or wealthy countries. However, industry’s share in Greece’s GDP in the same period was 19.8%, 22.6%, 20.4%, 17.7%, 17.1%, and 15.7% and agriculture was 4.8%, 3.6%, 3.4%, 3.2%, 3.1%, and 3.3%. In accordance, there are presumably limited cards on the table for Greece to propel economic growth, aside from relying on service industry such as tourism; the finite contribution of industry and agriculture in the overall economy constrains the. 政治大. country’s options. One research on risk analysis of investing in Greece argues that the Greek. 立. economy lacks competitive industry, and to some extent that is hereditary. Greece’s. ‧ 國. 學. manufacturing remains a weak spot, and it depends heavily on imports. Also, its exports. ‧. mainly comprises natural resources, which is already scarce in Greece. Therefore, boosting. Nat. io. sit. y. exports is not going to lead to significant improvements for the Greek economy (The. al. er. Department of Investment Services, Ministry of Economic Affairs, 2015).. n. v i n Tax evasion. One major sourceCofhgovernments’ revenue e n g c h i U comes from taxes. The Greek. government, unfortunately, had never been able to bring in enough tax to cover its spending. Tax evasion in Greece was wild. Described in one OECD report (2009a), “the efficiency of tax collection in Greece in 2006 was the lowest among the Eurozone countries.” Researchers point out that Value Added Tax (VAT) collection in Greece was at a poor level of 75% of the unweighted average for the Eurozone countries, and “for social security contributions and corporate taxes” the number was 87% and 75%, just above the Eurozone average. It was also.

(42) 35. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. calculated that had all tax collections in Greece reached the Eurozone average of 87%, it was possible to see an extra tax revenue of about 5% of its GDP, which would have turned the budget into surplus for most of the years. There was even estimation that the scale of tax evasion was as high as 4% of GDP on annually (Katsimi, 2010). Some scholars impute the inefficiency of tax collection in Greece to Greek people’s unregulated nature. Most Greek people reckon it is no big deal not to pay taxes, and the. 政治大. government did not punish people who did not conform to the duty, either. Yet, there are also. 立. other reasons factoring in. There have been complaints that paying gradually higher taxes. ‧ 國. 學. does not guarantee more quality public service (Katsimi, 2010), mainly due to the. Nat. io. sit. inefficient governments through not paying taxes.. y. ‧. governmental inefficiency and corruption. Perhaps people express dissatisfaction towards. al. er. Another impediment for tax collection in Greece is its disproportional underground. n. v i n C h 28% of the GreekUeconomy is shadow economy and economy. Estimations reveal that around engchi more than 40% of self-employed income goes unreported and thus untaxed (Artavanis, 2015). In addition, many people who dodge tax payments are usually people in the higher income bracket such as doctors, bankers, educators, and lawyers. Greece’s Finance Ministry in 2009 disclosed that “in one of the wealthiest parts of Athens, 90 out of 150 doctors had claimed net annual incomes of less than 30,000 euros, with 30 of them claiming less than a third of that” (13,000 euros is a threshold; people with annual income salary less than 13,000 euros do not.

(43) 36. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. need to pay taxes.) With scarce income taxes that are on the record and can be taken in, along with the mindset of the Greek people that if the politicians and the rich people are not paying tax then why should they and thereby creating a vicious cycle, it should not be seen as a surprise the whopping inefficiency in tax collection in Greece. Corruption, political clientelism, and rent seeking. A piece of news report in the Wall Street Journal says it well: “Behind the budget crisis roiling Greece lies a riddle: Why does. 政治大. the state spend so lavishly but collect taxes so poorly? Many Greeks say the answer needs. 立. only two words: fakelaki and rousfeti” (Walker, 2010). Fakelaki means “little envelope”. ‧ 國. 學. whereas rousfeti means “expensive political favors” in Greek. It is not hard to smell the. ‧. sarcasm behind the response for the question.. Nat. io. sit. y. One statistic that has been brought up the most in scholarly works is how Greece was. al. er. ranked in Transparency International’s Corruption Perception Index. Greece has the worst. n. v i n rank in Southern Europe in 2010. ItC ranked h e the h i U in 2011 and slid further to the n g84cglobally th. 94th in 2012. Bribery, patronage, and other public corruption are said to be also one major contributing factor for the Greek swelling debt, estimated to be at around 8% of its GDP on a yearly basis (Jin, p. 82). The Greek people joke about being a good citizen; what they usually do is to buy off people for favors, let it be getting licenses, doctor’s appointments, education for children, or permission for constructions. As a result, fees that would normally have been.

(44) 37. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. generated in the process and the tax that would have been derived are non-existent. Those that are frequently bribed also turn out to be those that constantly commit tax evasion. The phenomenon, subsequently, makes the vested interests even more reluctant to see changes brought about and their interests taken away. Cooking the books. Looking back, it was certain that Greece never really abided by the SGP. In the pact, it is clearly written that the ratio of member states’ budget deficit and public. 政治大. debt to GDP should not exceed 3% and 60% respectively, a crucial criterion for participating. 立. in the Eurozone. How did Greece meet the qualifications of the member state in the EMU. ‧ 國. 學. then?. ‧. In various news reports and scholarly works, Greece was accused for doctoring its. Nat. io. sit. y. account book in order to gain entrance to the EMU. Evidence presented itself of a staggering. al. er. deal between the public debt division of Greece’s finance ministry and the New York based. n. v i n C h 2003). The dealUinvolved a method called crossinvestment bank Goldman Sachs (Dunbar, engchi. currency swaps that essentially allowed Greece to receive approximately one billion euros in 2000. The maturing date was around ten to fifteen years later, and so Greece managed to conceal it off the account book, thereby on the surface seemed to have conformed the SGP (Balzli, 2010). In short, Greece should not have been admitted to the EMU in the first place since it never complied with the SGP rules. If it had not been accepted, it would not have easily.

(45) 38. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. received loans and would have had monetary policies as a tool when facing difficulties. Debt maturity profile. One more critical factor causing the deterioration of the situation was the maturity profile of the Greek public debt. As shown in Figure 2-6, the maturity dates for the Greek bonds issued in the past concentrate in the period of 2010-2019, and that weakened Greece’s payment capacity. In other words, Greece borrowed money throughout the crisis and is set to pay back the debt in the second decade of the 21 st century, and by the. 政治大. time of maturity, it did not have sufficient capital for payments. Greece was doomed to be. 立. debt-laden at this period of time.. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. Source: Public Debt Management Agency (2010) Figure 2-7. Public Debt: Maturity Profile (2010-2057) Concluding Remarks To sum up, the root causes for the Greek sovereign debt crisis are as follows: the structural flaws of the EMU, the 2008 Financial Tsunami, the extravagant spending behavior, the lack of competitiveness in the economy, cooking the books, tax evasion, rampant.

(46) 39. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. corruption, state control of the economy, and the debt maturing dates. It is important to understand why the crisis happened in the first place since the remedies to the problems need to address the core causes. It would be a fantasy that the crisis will easily disappear if the steps taken are not appropriate.. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v.

(47) 40. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. Chapter 3. Reasons the Greek Sovereign Debt Crisis Still Pends On April 23, 2010, Greece requested help from the IMF, activating a total of 45 billion euros of financial assistance. On May 2, 2010, Greece and the EC, the ECB, and the IMF, collectively named Troika, stroke a deal on a three-year program of economic reforms and financing. In essence, it was the first bailout given to Greece, totaling 110 billion euros. Troika officials had a consensus that a disorderly Greek default could trigger a mass. 政治大. catastrophe. Not only would Greece’s exit from the Eurozone devastate the confidence in the. 立. euro and European economic integration, it would also set a precedence of debtor countries to. ‧ 國. 學. leave all the responsibilities and debt burdens behind and turn their back away from the. ‧. Eurozone. The bailout was an unprecedented deal, and in order to receive the funds, the. Nat. io. sit. y. Greek government committed to far-reaching economic reforms. These measures prevented a. al. er. default, albeit temporarily. One year later, Greece’s economy contracted sharply and again. n. v i n C Greece veered towards a default. Once again, in dire need of help and, once again, h e nwas gchi U. European leaders had no choice but to announce a second set of crisis response measures in July 2011. The new bailout was a more expensive one, amounting to 130 billion euros in total, and called for holders of Greek bonds to accept partial losses. There were also requested terms on austerity and reforms. Additionally, between the two bailout packages, there was another financial rescue mechanism. In June 2010, the European Financial Stability Facility (EFSF) was established. It was a special pool of money collected for the purpose of assisting.

(48) 41. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. countries that were in debt, totaling 780 billion euros. The EFSF was later replaced by the European Stability Mechanism (ESM). The ESM is a more formally regulated institution but its prepared fund was cut down to approximately 80 billion euros. Until 2016, it had been more than six years since the outbreak of the Greek sovereign debt crisis. The fact is, however, we are still seeing Greece struggling, after all the efforts. In 2015, not only had Greece not gotten back on track, there was even the election that. 政治大. overthrew the right-wing, austerity-compliant PASOK party and put the more rebellious. 立. Syriza party into power. The election created a mayhem mainly due to the party’s ostensible. ‧ 國. 學. disobedience towards the austerity measures demanded by the creditors. The party’s leader,. ‧. Alexis Tsipras, self-proclaiming to be on behalf of the Greek citizens, in several occasions. Nat. io. sit. y. openly announced that Greece would not comply with the belt-tightening demands from. al. er. external forces anymore. The market was again riled and doubts on whether the euro is a. n. v i n C hthe European integration. valuable currency was again shadowing engchi U. Consequently, it is crucial to understand why after all the endeavors, the Greek sovereign debt crisis did not come to an end. To achieve this goal, one needs to examine the details of the past efforts, and the relations between those efforts and the root causes of the crisis. The task of this chapter will be analyses of the two bailouts and the financial assistance mechanisms, the EFSF and ESM, how they were designed and implemented, and what was missing for those bailout measures to serve their original purpose: lifting Greece out of crisis..

(49) 42. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. The Rescued Funds Distributed Before 2015 In this section, official documents are used as references. The analyses and statistics are abstracted from the official documents. The First Economic Adjustment Programme for Greece (Directorate-General for Economic and Financial Affairs, 2010). On May 2, 2010, the joint mission of Troika concluded a staff-level agreement for a bailout of 110 billion euros for Greece, along with. 政治大. supporting economic policies; the 110 billion euros was set to be funneled to Greece over the. 立. course of May 2010 and June 2013. Of which, 80 billion euros came from bilateral lending of. ‧ 國. 學. Eurozone member states, and 30 billion euros came from the IMF.. ‧. The economic adjustment program had several targets. Its short-term objectives were to. Nat. io. sit. y. maintain financial stability and to restore market confidence that Troika was determined to. al. er. secure fiscal sustainability and contain the fear that the Eurozone may disintegrate. In the. n. v i n short run, the resumption of marketC confidence U was containing the crisis h e n gthatc the h iauthority and enhancing the sustainability of fiscal consolidation was imperative. Plus, there needed to be measures to generate savings and future revenues. The tight liquidity conditions in the Greek banking system needed to be addressed as well; outflows of capital had to be tamed and monitored to prevent the market from collapsing. The program’s medium-term objective was to improve Greece’s overall competitiveness and better the structure of its economy, which for a large part relied on the service industry such as tourism, towards a more.

(50) 43. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. investment- and export-led growth model. Thus, the economic competitiveness necessitated improvements. Greece needed to speed up the reallocation of resources from non-tradable to tradable sector in order to foster growth. Greece was also ordered to modernize its public sector, open up for foreign direct investment, with the subtle connotation of scaling down the state’s direct participation in domestic industries and treading towards a more liberal economy, and render the labor market and the product market more efficient and flexible. The. 政治大. program’s overarching objectives in the long run were to restore Greece's credibility for. 立. private investors and to prove to the world that Eurozone would not collapse.. ‧ 國. 學. It was crucial that the parties at stake, Greece or the EU officials alike, reassure the. ‧. market that the Troika would provide sufficient capital Greece required and come up with. Nat. io. sit. y. measures for the Greek economy to generate savings and revenues. At the same time, reforms. al. er. on the pension system was mandated. In return for monetary assistance, Greece was obliged. n. v i n C h to meet the objectives. to carry out fiscal and structural reforms e n g c h i U Reform plans in the first. economic adjustment program were mainly divided into systematic reforms, and labor and product market reforms. Included in systematic reforms were making income tax more progressive, improving tax administration and increasing its efficiency, introducing stronger enforcement and auditing of wealthy individuals, upping the value-added tax (VAT), building headquarters for strategic management and planning capabilities in tax and customs administration, curbing government’s wage bill (over the course of 2000 to 2008, public.

(51) 44. THE GREEK SOVEREIGN DEBT CRISIS – CAUSES AND FUTURE. wage grew by 100% while nominal national GDP increased merely 74%, and public wage went up by 7.5% once more in 2009), setting up wage scale structure, and avoiding fraud and inequality. All these measures were, as a premise, asked to be made into laws. Large cuts in public wages and pensions were inevitable. For instance, cuts in wages, such as taking away Easter, summer, and Christmas bonuses, were set to be at 10.5% by 2010, while cuts in pensions, including the elimination of flat bonuses and press pensions for. 政治大. those who earn more than 1,400 euros per month, were set at 8% on average. Figure 3-1. 立. shows the estimation of Greece’s future government debt level with and without pension. ‧. ‧ 國. 學. reforms.. n. er. io. sit. y. Nat. al. Ch. engchi. i n U. v. Source: Directorate-General for Economic and Financial Affairs (2010, p. 19) Figure 3-1. Two Scenarios for Very Long-term Government Debt Projections Product markets were also one to-be-fixed area, in which Greece was infamous due to its poor performance related to the “business start-ups, operations, and licensing activities,”.