Greek debt crisis

On April 23, 2010, Greece, a member of the euro area with a population of almost eleven million, had to ask its euro neighbors and the International Monetary Fund for financial assistance. The country was practically on the brink of national bankruptcy. For years, consumption far exceeded production. As a result, the national debt accumulated through borrowing abroad rose to dizzying (staggering) heights. On the financial market, Greece was practically unable to place any new bonds after it became known that the shortfall in government spending from revenues in 2010 was estimated at at least 15 percent (the ceiling agreed in the Stability and Growth Pact is 3 percent). – The aid package for Greece – triggered arguments about whether such a safety net did not send the wrong signals to other weaker members of the euro area. If a state knows that it will be supported in an emergency, the government will refrain from taking unwelcome measures (such as cutting back on government spending that cannot be financed from its own economic strength, raising taxes, longer working hours, higher retirement age). – The principle of a level playing field in the financial market was severely violated by the bailout. Many (especially French) institutions bought Greek government bonds without hesitation because their yields were tempting. Other banks avoided these bonds because they clearly estimated the high risk of loss. The bailout of their risk-taking competitors now obviously disadvantaged the institutions that had acted cautiously; these rightly saw themselves as losers. – The question also arose as to how far and for how long the citizens of other member states would be prepared to pay for the deficits of other EMU countries; in other words, that political forces would gain the upper hand which had set themselves the goal of dissolving the monetary union. – Finally, it was perceived with concern that the International Monetary Fund was supporting a country that was in distress not because of debt in foreign currency (xeno currency), but because of over-indebtedness in its own currency, namely the EUR. – It turned out to be a misjudgement that a small member like Greece could not endanger the big picture, namely the EMU. – It is worth mentioning that with the EUR, the citizens of Greece received a stable currency for the first time in their recent history, but now widely attributed the reasons for the sovereign default to others (but mainly to Germany). Also, due to its membership in the Eurozone, interest rates in Greece fell to low levels previously unknown in that country. This stimulated borrowing; but as it turned out, hardly for investment to improve and expand the capital stock and thus to strengthen competitiveness. Instead, a large part of the loans went to luxury consumption (especially the purchase of expensive automobiles and yachts) and to unprofitable buildings. (General) strikes, marches and mass rallies opposed cuts in government spending and adjustments in the economy to average European levels. – Greece’s exit from the eurozone, which many were calling for, was seen as highly dangerous; if only because Ireland, Portugal, Spain and perhaps Italy could then follow suit. German banks had very high claims on Italy and ClubMed in 2010. These would overnight become foreign currency claims in a questionable domestic currency, which could lead to a crash at German banks. In addition, there would be a strong appreciation of the residual euro. In order to avoid such chain reactions, it was decided to provide extensive and ever new financial aid to Greece. – At the beginning of March 2012, the holders of Greek government bonds were “voluntarily compelled” to waive half of their claims. After all, however, in the course of its controversial monetary policy outright transactions, the ECB had Greek government bonds with more than twenty percent of the Greek in its portfolio at the beginning of 2014. – See alignment automatism, investor strike, bail-out, balance sheet adjustment, blame game, expropriation, cold, blackmail potential, euro bonds, European Debt Agency, European Monetary Union, fundamental error, European Stability Mechanism, European Monetary Fund, contingent debt, EMU explosive, ECB balance sheet, financial stability, Friedman thesis, gold backing, gold sacrifice, Grexit, peer pressure, fiscal consolidation, Ireland crisis, Neuro, policy clamp, policy default, bailout, blowback effect, debt sustainability, solidarity, financial, special drawing right, blocked account, sovereign debt pressure, Stability and Growth Pact, fundamental error, governance framework, structural reforms, transfer union, excess demand, economy-wide, wealth tax, debt-productivity linkage, contract compliance, growth-debt fact, historical, forced expropriation. – Cf. ECB Monthly Report of May 2010, pp. 50 f. (measures initiated by Greece to meet the Maastricht criteria), Deutsche Bundesbank Monthly Report of May 2010, pp. 12 f. (critical comments on the guarantees in the course of the Greek bailout), ECB Monthly Report of June 2010, pp. 38 ff. (near collapse of the financial system in early May because of the problems with Greece), Deutsche Bundesbank Monthly Report of July 2010, p. 23.
et seq. (on the fundamentals), p. 49 (effects of the Greek crisis on the EUR exchange rate), Deutsche Bundesbank Monthly Report of August 2010, p. 43 (yield differentials of 10-year government bonds in 2009 and 2010), ECB Annual Report 2010, p. 21 (explanation of the ECB’s measures), BaFin Annual Report 2010, p. 15 ff. (there also overviews of the maturity and yield of Greek government bonds), Deutsche Bundesbank Monthly Report of June 2011, pp. 29 ff. (yield differentials of euro area government bonds; overviews; explanatory approaches), Financial Stability Report 2011, pp. 18 ff. (support measures in detail), Monthly Report of the Deutsche Bundesbank of November 2011, p. 43 (premiums for Pigs government bonds since 2009), BaFin Annual Report 2011, pp. 86 f., pp. 117 f. (issues of write-downs on Greek government bonds), BaFin Annual Report 2012, p. 19 (enumeration of aid measures).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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