Polisi-Greek-Debt-Essay

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					Danielle Falkner
10-30-11
Political Science 340 Exam Essay
Greek Debt Crisis

         The Greek debt began when the euro was very valuable and strong, as well as the
interest rates on the euro were very low. When this happened Greece took full advantage
of this opportunity to take a lot of money in loans and tried to improve their economy.
Greece accumulated $400 billion dollars in debt after all of their borrowing was over. In
December of 2009 when Prime Minister Mr. Papandreou (who took office in November
2009) told the country and its investors that the debt Greece had, had been covered up
and was much higher then previously stated, people did not know the extent of how the
debt was rising and how much debt they really had as a economy. After this news had
come out there was budget cuts as well as many countries had vowed to give money to
Greece to help with their economic difficulties, this still did not help, and the inflation
rates of the Greek economy continued to increase day by day. Then in April 2010 Mr.
Papandreou called his economy a “sinking ship” and had to ask for $60 billion dollars in
loans to try and help his failing economy. This was a big deal because the previous
government had stated that the debt was at a 3.7 percent of the nations gross domestic
profit, when it really was 12.7 percent of the gross domestic profit. This created a great
fear with all of the investors that had been putting money into Greece and who had been
backing the euro. Four countries that were especially affected by this were France,
Germany, Portugal, and Spain. The fear was that there was going to be a struggle with
getting the euro back to the strong currency it once had been. These countries did not
want to bailout Greece but they were willing to do everything just short of that with the
hopes that the euro could be saved. There was a way to help save Greece and try to
protect Greece from an absolute meltdown and that was to create bilateral loans from
other European nations that would be willing to help Greece and combine that with cash
the I.M.F. was willing to give to Greece. But the promises that the I.M.F were making
and the promises all of the other nations were willing to help were making were not
enough to keep the investors happy, so the investors slowly began raising their interest
rates on the money they were willing to lend Greece. “On April 11, European leaders
announced that they would make $30 billion available to Athens, along with up to $15
billion from the I.M.F., in the form of loans with an interest rate of 5 percent — lower
than the 7.5 percent Greece had been paying, but high enough that German officials could
insist that it did not constitute a subsidy or bailout.” (NYTimes) By June of 2011, the
Socialist party began to fall apart and split into two groups, and by October 2011 the
disagreements and the protest became violent. This is because parliament is continuing to
keep their help coming to Greece to attempt to preserve the economy as long as possible.
Just recently the European leaders have made it clear and have passed a resolution that
the banks holding Greece’s debt must swallow 50% of the money that is owed to them.
This is good for Greece but not good for the banks taking a 50% loss in profit that should
be returned to them. It is scheduled that by 2020 the debt should be decreased to 120
percent of the nation’s gross domestic product, which is not that great at all, but in the
light of the amount of debt they have had since the debt crisis began this is a step in the
right direction.
         The primary actors involved in the Greek debt crises are everyone in the EU,
which is a number of European countries that are all dedicated to making Europe
cohesive together, and with the rest of the world. The interest of the European Union as a
whole is that they all use the Euro and they want their currency to remain strong. The
main goal of the EU is too keep Europe together and make sure that their alliances with
each other stay strong. A weak European Union will cause Europe to be extremely
vulnerable to attack, (not saying that anyone would go attack Europe) but the power
source and the governing leadership the European Union provides for Europe, would not
be there anymore, it would become very weak. Another actor involved in the Greece debt
crisis is Germany who is the country willing to not let Greece fall to the point where
Greece would have to be completely reconstructed from the ground up. Germany has
been willing to give Greece the budget cuts and the loans with relaxed or decreased
interests. Germany is vital to Greece at this point in their crisis. Though Germany is
beginning to get concerned about the support they will receive from their own citizens.
The money that is going to Greece out of Germany has to be coming from somewhere
and that would be out of the taxes the German citizens are paying. Because of this
Germany is opting for their involvement to be classified and reported as being a privet
supporter and financial support for Greece. The United States is another primary actor in
the Greek debt crisis not as directly as other actors who are giving Greece money, but the
United States relationship with Europe in the aspect of trade makes the United States
involvement greater then one would think. If the value of the euro decreases then the
value of the dollar will increase at the same rate. This means that the price that Europe
will have to pay to trade with the United States would be higher, and the price it will cost
the United States to trade with Europe would be decreased. The I.M.F. is a major actor in
the Greece’s debt crisis because they are having a hard time giving money to Greece.
This is because Greece has lied about its debt for a number of years. The investors are
concerned that Greece would lie to them about there money, so it is becoming very hard
for Greece to get bonds to make up for there already accumulated debt. All actors
involved in this crisis all have one thing in common, an uncertainty about where they
think their money will go, and how it will be used. Another thing that everyone
contributing to the crisis have in common is that they all know that if they help Greece
then they will all be above Greece and Greece will be in debt to them, which gives the
investor’s power and control over what Greece is spending its money on.
        A Resolution to the Greek debt crises is for Greece to take serious cuts in its
economy. Even though they are already taking many steps that have decreased it’s
spending, it needs to be cut more. Another action the Greece needs to take is that the
government and parliament needs to be upfront about the amount of debt they have and
how much money they are losing in real time because of it. Greece needs to make
agreements with the nations that are willing to loan them money about how and when
they are going to pay them back. There needs to be a straight forward amount of money
nations such as Germany and the France are willing to give Greece, with a clear deadline
of when the money needs to be made and paid back. Some drawbacks to this plan is that
just because there is an agreement and promises, that does not mean that it will stay
together and there is no guarantee that Greece will have enough money to be able to hold
up to they agreements that would be made. Another draw back to making agreements is
that there are many different countries that are willing to help Greece and it would be
difficult to make promises to each of those nations. It would take a very long time to meet
with all of the dignitaries and come up with a reasonable time period in which the money
would have to be paid back to them. One final drawback to this plan is that there is no
way of knowing the future, meaning that there is no way of knowing if the euro will
become a strong currency like it was or if the euro is going to keep decreasing. Because
of this, if the euro’s value decreases then those countries would have to increase interest
rates to make up for the difference in value. It also is very unclear if Greece will actually
be able to use the money they would be receiving to good use. Greece lying about there
deficit, makes it hard for investors to trust them to use their money to good use and use
the money in the right way in order to better their economy. A few benefits to this plan is
that if Greece would have deadlines of when they had to pay the countries back, or they
would lose there power and their integrity in the world economy, they would be more
likely to allocate the money in a resourceful way. Another benefit to this plan is that this
would give the investors time to sit and talk to Greece’s parliament and understand how
Greece would plan to spend their money, this is important to investors because they
would be more willing to give their money to help if they would know exactly here the
money would be going. There are a lot of different ways that Greece could fix the debt
crisis that they are going through, but if Greece would have some form of commitment
that the economy, and the country, would use the loans to support Greece’s economy in a
useful way, Greece would be more likely to dig themselves out of the hole they have
been in for so many years.
                                        Sources

"EU Agrees On Deal To Reduce Greece's Debt | Fox News." Fox News - Breaking News
      Updates | Latest News Headlines | Photos & News Videos. 26 Oct. 2011. Web. 29
      Oct. 2011. <http://www.foxnews.com/world/2011/10/26/eu-agrees-on-deal-to-
      reduce-greeces-debt/>.

"Greek Debt Deal: Many Questions Remain - CSMonitor.com." The Christian Science
       Monitor - CSMonitor.com. 28 Oct. 2011. Web. 29 Oct. 2011.
       <http://www.csmonitor.com/Business/new-economy/2011/1028/Greek-debt-deal-
       Many-questions-remain>.

"Greece News - Breaking World Greece News - The New York Times." Times Topics -
      The New York Times. 28 Oct. 2011. Web. 29 Oct. 2011.
      <http://topics.nytimes.com/top/news/international/countriesandterritories/greece/I
      ndex.html>.

Rinke, Andreas, and Noah Barkin. "Europe Eyes Private Sector Role in Greek Debt Deal
       | Reuters." Business & Financial News, Breaking US & International News |
       Reuters.com. 08 June 2011. Web. 29 Oct. 2011.
       <http://www.reuters.com/article/2011/06/08/us-eurozone-
       idUSTRE7571YC20110608>.

				
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