In this paper, these effects as well as the connection between the Greek crisis and the euro crisis are examined. To begin with, an insight into the causes of the debt crisis in Greece and how the crisis has spread to the eurozone. This will be followed by the euro crisis in general and its other causes. The fifth chapter deals with measures and solutions for Greece as well as the entire euro zone. This work finishes with a conclusion on the topics mentioned.
In recent years, the news and media have dealt extensively with the “euro crisis”. For this reason, it should be a common term for any European. The euro crisis isn’t about the euro, but about a currency, bank, economic crisis and about state debts. Because of the different opinions about the crisis’ causes, this topic is a very controversial one. It is common that the global financial crisis, which resulted from the Lehmann bankruptcy in 2008, is being considered responsible for the euro crisis. However, the global financial crisis wasn’t accountable.
There are other reasons for the outbreak of the euro crisis, such as the existing weaknesses of a system, which was already missing in structure, or America’s financial crisis. Not to forget, however, is the “Greek crisis” and its impact on the euro zone.
Content
1. Introduction
2. Causes of the Greek debt crisis
3. Expansion on the euro zone
4. The euro crisis and its causes
4.1 The emergence of public debts
4.2 The differences in competitiveness
4.3 The banking crisis
4.4 The macroeconomic crisis
4.5 The decision-making structures within the European Union
5. Solution approaches and rescue mechanisms
5.1 Clamping the bailouts
5.2 Structural revision and development of monetary unions
5.3 Further development to the fiscal union
6. Conclusion
7. Bibliography
Index of abbreviations
Abbildung in dieser Leseprobe nicht enthalten
1. Introduction
In recent years, the news and media have dealt extensively with the “euro crisis”. For this reason, it should be a common term for any European. The euro crisis isn’t about the euro1, but about a currency2, bank, economic crisis3 and about state debts.4 Because of the different opinions about the crisis’ causes, this topic is a very controversial one. It is common that the global financial crisis, which resulted from the Lehmann bankruptcy in 2008, is being considered responsible for the euro crisis.5 However, the global financial crisis wasn’t accountable.6 There are other reasons for the outbreak of the euro crisis, such as the existing weaknesses of a system, which was already missing in structure7, or America’s financial crisis.8 Not to forget, however, is the “Greek crisis” and its impact on the euro zone. In this paper, these effects as well as the connection between the Greek crisis and the euro crisis are examined. To begin with, an insight into the causes of the debt crisis in Greece and how the crisis has spread to the eurozone. This will be followed by the euro crisis in general and its other causes. The fifth chapter deals with measures and solutions for Greece as well as the entire euro zone. This work finishes with a conclusion on the topics mentioned.
2. Causes of the Greek dept crisis
There are various reasons for the public debt in Greece. These can be divided into internal and external. Internal reasons are understood as those that can be influenced by the Greek state itself with political or economic measures. The external reasons, however, cannot be influenced directly or not at all by Greece.9
The national budgets of the European Member States showed high deficits even before the single currency. These developed into debt and could turn into state bankruptcy.10 This also applied to Greece. Compared to Germany, Greece had current account deficits amounting to 14.5% of GDP. On the other hand, Germany with a surplus of 7.5% of GDP.11 Some high-exporting countries in the euro-zone had more savings than investments. For others, the opposite was true. In the current account, whose components can be put together from the trade in goods, the services, the primary income and the secondary income, this fact is mapped. The fact that an economy produces more than consuming foreign and own goods, points to a current account surplus. Thus, such an operating economy builds up foreign assets. For countries with a current account deficit, the whole thing is exactly the other way around. With them, more foreign and own goods are consumed than produced.12 The external debt of the Greek state already went up between 2001 and 2007 as a result of current account deficits. Decisive factors were also falling prices and the associated increase in the yield on Greek government bonds.13 Thus, the liquidity of the state was directly threatened.14 Excessive borrowing by Greek companies and households was responsible for the development of sovereign and foreign debt. The loans could not be paid for the most part. Bank failures, a loss of confidence and a sharp collapse of the economy followed. As later seen in a rising national debt, clear handicaps for the public household were connected.15
The huge reduction in the competitiveness of the Greek economy is one of the main causes of the crisis. Here, labor costs have risen significantly faster than productivity. In 2011, pension increases represented 11% of Greece's GDP, the highest in the eurozone. The privatization of enterprises and thus also the private economic activity was strongly impeded by the public administration. Compensating for slumps in exports with improvements in services was also unsuccessful. As a result, the Greek state lived far beyond its means and became immensely indebted. A failed economy and structural deficits are therefore sometimes the main causes of Greek financial problems.16
What Greece had no direct influence on were the external causes.17 The change of currency has given many Member States positive and negative consequences. However, the Greek state soon had to realize that seemingly positive consequences quickly developed as negative ones.18 These supposedly positive effects include easier accessibility to capital and the reform of the Greek banking sector. Before the reform, there was an upper limit of € 25,000 for consumer credit at a single credit institution. This was lifted to achieve a homogenization within Europe. Thus, banks were able to issue consumer loans in unlimited amounts. Further reforms, such as the reduction of the reserve requirement of 12% to the usual 2% in the EU cleared the way for easier borrowing conditions, leading to higher private sector debt and a deteriorated banks' risk balance.19
The adoption of the single currency led in direct contrast to the supposedly positive consequences to negative effects. The change automatically made the Member States lose control of their own currency. Thus, the associated risk of insolvency followed, in contrast to highly indebted countries with their own currency such as Japan, the USA or England. A country with its own currency can buy up government bonds of its own country at any time through its own central bank. Practically, these countries cannot run into a shortage of liquidity because they can create the money they need to repay themselves.20 In a monetary union, this possibility does not exist. In addition, a country within a monetary union also lacks the means of devaluing its own currency. This can correct one's own competitiveness. For Greece, this would be invaluable.21
Additionally, there is the insufficient risk assessment of Greek debt. Theoretically, the over-indebtedness of a country should be prevented from the markets in advance. The markets are in charge of controlling and they have the power to do so. The individual valuation of a country and the corresponding risk surcharge for one with high debt and deficit ratios lead to high borrowing costs, thus preventing a dangerously high level of capital raising. In the case of Greece's crisis, this was neglected excessively.22 In Greece, more and more government bonds were in demand as a secure investment over a long period of time. That the risk rose with each new bond was not considered. The more government bonds are issued, the higher the interest burden that results. Greece reached a stifling level of interest.23
3. Expansion on the euro zone
Among other causes, the situation in Greece was also responsible for the emergence of the euro crisis.24 The euro area’s skepticism about the ability of the Greek government to deal with its sovereign debt had grown. This concern quickly spread to the solvency of other countries. These countries included Ireland, Italy, Portugal, Spain and Cyprus. Thus, a common crisis emerged from several national crises: the euro crisis.25
In October 2009, the crisis in Europe gained new momentum, as Greece announced it had a much higher government deficit than previously stated. This became known after a change of government.26 In addition, Greece had manipulated the values of public debt transmitted to the EU. This led to considerable doubts as to whether Greece could still pay these debts.27
Greece’s situation led to a reversal of capital flows and the interest rate increases demanded by creditors kept rising. In the international financial markets, this led to a loss of confidence. For a while, the interest rate premium on long-term government bonds was more than five percentage points above the interest rate mark for German government bonds.28 In addition, the already tense atmosphere was influenced by downgrades of rating agencies.29 For this reason, funds were forced to sell bonds, which increased the price pressure and worsened the rating position. In the Greek economy, there were significant deficits that were not known to that extent before the crisis. Various problems, such as wage and price developments and the performance of the state, showed a growing threat to the solvency of the Greek state.30 The refinancing costs for Greece continued to rise.31 Regionalization effects added to further crises in the other countries mentioned above, which also manipulated the economic and political culture.32 A loss of confidence in the international financial markets also developed for these countries. The bonds from Greece, Spain, Portugal and Ireland found hardly any buyers.33
However, not only the situation in Greece and the other crisis countries were causes for the euro crisis but also the situation in the US. The burst of the real estate bubble in the US in 2007 led to a worldwide banking crisis. Many different banks were confronted with bad debts.34 This also included the Lehman Brothers Bank, which had to go bankrupt in September 2008 and additionally influenced the crisis.35 By refusing banks to grant each other credit, the banking system has become even more destabilized.36 In 2008, after a downturn in world trade, there is talk of an economic crisis that leads to a sovereign debt crisis in Europe. Government debts continued to rise in Greece, Ireland, Portugal and Spain (GIPS countries) and, in addition, they had to cope with a budget deficit. In Ireland, for example, public debts rose from 25.1% of GDP in 2007 to 65.8% of GDP in 2009.37 The financial crisis had now developed into the euro crisis38 which was accompanied by rising unemployment and decreasing purchasing power of households. Induced by uncertainties and doubts regarding the power of payment of weaker EU countries the euro crisis took off in 2009. Although the deficits in some of these countries rose, the European Monetary Union did not react for the time being. It was only in 2010, with the help of the International Monetary Fund, that it began to develop rescue programs and packages. For example, a possible state bankruptcy of Greece should be prevented. As these rescue projects were insufficient, the EU decided in March 2011 to implement reforms to the structure of the monetary system. This should be done by enlarging the existing Stability Pact, by introducing a European monitoring facility and a system to prevent imbalances.39
In 2012, the whole situation had become more radical. Spain, Portugal, Italy and Ireland increasingly indebted40 and it was feared that the existing monetary union would collapse.41 The initially agreed stability criteria were not met and the European Union itself was not allowed to collect data but had to work with the information provided by the individual Member States.42
4. The euro crisis and its causes
The euro crisis is not a continuation of the financial crisis. The latter was caused by the bursting of the real estate bubble and the resulting banking crisis, which led to a credit crunch, which in turn led to an economic crisis.43 These two crises together led to a debt crisis which ultimately was followed by the euro crisis. However, you can not equate the two crises with each other. The problem of sovereign debts is merely a sign for the lack of structure in the eurozone, not the origin of the crisis.44 Thus, the crisis can also be described as a "structural crisis".45 These structural problems have already been known since the Maastricht Treaty. For a functioning monetary union, which includes a common currency, one also needs a stable political framework. This principle was ignored at the time of signing the Maastricht Treaty and postponed to another day.46 So it came without political order to the European currency. The Maastricht Treaty merely announced that the political framework would be followed by a new treaty - this was not launched during the good years of the euro.47
After the collapse in 2012, the tension had eased a bit, but the crisis in 2015 was not over yet.
[...]
1 Compare. Illing, F., Die Eurokrise, 2017, p. 2-3.
2 Compare. Nitze, K., Finanzhilfen für Euro-Staaten, 2015, p. 44.
3 Compare. Nitze, K., Finanzhilfen für Euro-Staaten, 2015, p. 54.
4 Compare. Nitze, K., Finanzhilfen für Euro-Staaten, 2015, p. 48.
5 Compare. Riehle, G., Eurokrise, 2016, p. 19.
6 Compare. Sarrazin, T., Europa braucht den Euro nicht, 2012, p. 249.
7 Compare. Riehle, G., Eurokrise, 2016, p. 0-21.
8 Compare. Schwarzer, D., Europäische Währungsunion, 2015, p. 115.
9 Compare. Schiffer, N., Schlichting, G., Die Staatsschuldenkrise Griechenlands, 2013, p. 6.
10 Compare. Brasche, U., Europäische Integration, 2013, p. 688.
11 Compare. Neubäumer, R., Eurokrise, 2011, p. 829.
12 Compare. Brasche, U., Europäische Integration, 2013, p. 707-708.
13 Compare. Schuppan, N., Die Euro-Krise, 2014, p. 132.
14 Compare. Schuppan, N., Die Euro-Krise, 2014, p. 133.
15 Compare. Neubäumer, R., Eurokrise, 2011, p. 829.
16 Compare. Bofmger, P., Deutschland braucht den Euro, 2012, p. 68.
17 Compare. Schiffer, N., Schlichting, G., Die Staatsschuldenkrise Griechenlands, 2013, p. 11.
18 Compare. Roth, K. H., Griechenland und die Euro-Krise, 2011, p. 159.
19 Compare. Brissimis, S. N., et al., Consumer credit in an era of financial liberalisation, 2012, p. 12.
20 Compare. Bofmger, P., Deutschland braucht den Euro, 2012, p. 84-86.
21 Compare. Leibiger, J., Bankrotteure bitten zur Kasse, 2011, p. 198.
22 Compare. Schiffer, N., Schlichting, G., Die Staatsschuldenkrise Griechenlands, 2013, p. 14.
23 Compare. Schuppan, N., Die Euro-Krise, 2014, p. 255.
24 Compare. Weidenfeld, W., Die Europäische Union, 2015, p. 190.
25 Compare. Adam, H., Mayer, P., Europäische Integration, 2016, p. 255.
26 Compare. Weidenfeld, W., Die Europäische Union, 2015, p. 190.
27 Compare. Adam, H., Mayer, P., Europäische Integration, 2016, p. 256.
28 Compare. Welfens, P. J. J., Von der Griechenlandkrise zum Zerfall der Eurozone?, 2010, p. 264.
29 Compare. Schuppan, N., Die Euro-Krise, 2014, p. 260.
30 Compare. Adam, H., Mayer, P., Europäische Integration, 2016, p. 258.
31 Compare. Schuppan, N., Die Euro-Krise, 2014, p. 260.
32 Compare. Weidenfeld, W., Die Europäische Union, 2015, p. 190.
33 Compare. Welfens, P. J. J., Von der Griechenlandkrise zum Zerfall der Eurozone?, 2010, p. 264.
34 Compare, Kirchhof, D., Die Krise der Europäischen Währungsunion, 2014, p. 44.
35 Compare. Scherf, G., Financial Stability Policy, 2014, p. 11.
36 Compare. Bastasin, C., Saving Europe, 2012, p. 90.
37 Compare. Kirchhof, D., Die Krise der Europäischen Währungsunion, 2014, p. 44-45.
38 Compare. Krieger, T. et al., Europe’s crisis, 2016, p. 13.
39 Compare. Kirchhof, D., Die Krise der Europäischen Währungsunion, 2014, p. 45.
40 Compare. Kirchhof, D., Die Krise der Europäischen Währungsunion, 2014, p. 45.
41 Compare. Adam, H., Mayer, P., Europäische Integration, 2016, p. 260.
42 Compare. Weidenfeld, W., Die Europäische Union, 2015, p. 191.
43 Compare. Roose, J. et al., Europas Zivilgesellschaft, 2018, p. 5.
44 Compare. Stiglitz, J. E., The Euro, 2016, p. 5.
45 Compare. Illing, F., Die Eurokrise, 2017, p. 2.
46 Compare. Weidenfeld, W., Die Europäische Union, 2015, p. 12.
47 Compare. Weidenfeld, W., Die Europäische Union, 2015, p. 191.