European Financial Crisis and the Greek Referendum

I would love to know how this global mess is going to be resolved, from the Occupy Wall Street movement to this latest bombshell dropped by Greece.

Greece threatens new euro zone crisis

Athens - Greek Prime Minister George Papandreou has threatened the euro zone with a new crisis with his shock announcement that he will hold a referendum on the last-minute bailout deal struck only last week to try to contain the bloc’s debt mountain.

Euro zone leaders agreed to hand Athens a second, €130bn bailout and a 50% write-down on its enormous debt to make it sustainable.

Papandreou, whose ruling Socialist party has suffered several defections as it pushes waves of austerity measures through parliament while protesters rally outside, said he needed wider political backing for the fiscal measures and structural reforms demanded by international lenders.

“If there was to be a referendum, we may reasonably conclude that they may not accept the austerity measures. We may conclude that it will bring the pack of cards tumbling down,” Howard Wheeldon, senior strategist at BGC Partners in London, said.

Anybody have any thoughts as to how the global economy can not only be rescued but once again turned to prosper??

So how does this work?

Here’s a bit of background on how the crisis came about:

(you have to love Wiki)

From late 2009, fears of a sovereign debt crisis developed among fiscally conservative investors concerning some European states, intensifying in early 2010.[1][2] This included eurozone members Greece, Ireland, Italy, Spain and Portugal, and also some non-Eurozone EU countries. Iceland, the country which experienced the largest crisis in 2008 (see 2008-2011 Icelandic financial crisis) when its entire international banking system collapsed, has emerged less affected by the sovereign debt crisis as Icelandic citizens refused to bail out foreign banks in a referendum. In the EU, especially in countries where sovereign debts have increased sharply due to bank bailouts, a crisis of confidence has emerged with the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany.[3][4]

While the sovereign debt increases have been most pronounced in only a few eurozone countries they have become a perceived problem for the area as a whole.[5] In May 2011, Greek public debt gained prominence as a matter of concern.[6] The Greek people generally reject the austerity measures and have expressed their dissatisfaction through angry street protests. In late June 2011, Greece’s government proposed additional spending cuts worth 28bn euros (£25bn) over five years. The next 12 billion euros from the Eurozone bail-out package will be released when the proposal is passed, without which Greece would have had to default on loan repayments due in mid-July.[7]


Greek debt in comparison to Eurozone averageThe Greek economy was one of the fastest growing in the eurozone from 2000 to 2007; during that period, it grew at an annual rate of 4.2% as foreign capital flooded the country.[9] A strong economy and falling bond yields allowed the government of Greece to run large structural deficits. According to an editorial published by the Greek right-wing newspaper Kathimerini, large public deficits are one of the features that have marked the Greek social model since the restoration of democracy in 1974. After the removal of the right-wing military junta, the government wanted to bring disenfranchised left-leaning portions of the population into the economic mainstream.[10] In order to do so, successive Greek governments have, among other things, customarily run large deficits to finance public sector jobs, pensions, and other social benefits.[11] Since 1993 the ratio of debt to GDP has remained above 100%.[12]

Initially currency devaluation helped finance the borrowing. After the introduction of the euro in Jan 2001, Greece was initially able to borrow due to the lower interest rates government bonds could command. The late-2000s financial crisis that began in 2007 had a particularly large effect on Greece. Two of the country’s largest industries are tourism and shipping, and both were badly affected by the downturn with revenues falling 15% in 2009.[12]

To keep within the monetary union guidelines, the government of Greece had misreported the country’s official economic statistics.[13][14] In the beginning of 2010, it was discovered that Greece had paid Goldman Sachs and other banks hundreds of millions of dollars in fees since 2001 for arranging transactions that hid the actual level of borrowing.[15] The purpose of these deals made by several successive Greek governments was to enable them to continue spending while hiding the actual deficit from the EU.[16]

In 2009, the government of George Papandreou revised its deficit from an estimated 6% (8% if a special tax for building irregularities were not to be applied) to 12.7%.[17] In May 2010, the Greek government deficit was estimated to be 13.6%[18] which is one of the highest in the world relative to GDP.[19] Greek government debt was estimated at €216 billion in January 2010.[20] Accumulated government debt was forecast, according to some estimates, to hit 120% of GDP in 2010.[21] The Greek government bond market relies on foreign investors, with some estimates suggesting that up to 70% of Greek government bonds are held externally.[22]

Estimated tax evasion costs the Greek government over $20 billion per year.[23] Despite the crisis, Greek government bond auctions have all been over-subscribed in 2010 (as of 26 January).[24] According to the Financial Times on 25 January 2010, “Investors placed about €20bn ($28bn, £17bn) in orders for the five-year, fixed-rate bond, four times more than the (Greek) government had reckoned on.” In March, again according to the Financial Times, “Athens sold €5bn (£4.5bn) in 10-year bonds and received orders for three times that amount.”[25]

How the bigger picture works? I’ll be damned if I know.

I see you post quite a few news24 links. If you want accurate news coverage you would be well advised to go elsewhere. News24 are the online equivalent of tabloids like The Voice or Die Son.