World

Greek Odyssey: Debt crisis explained

Greece is in a financial crisis.

The past years have seen protests, rioting and much debate to try and solve the country's incredible debt problem.

Its radical left government said it may resign if it fails to win a referendum that could decide the country's financial future.

Finance Minister Yanis Varoufakis said the government "may very well" quit if the public went against it.

But European chiefs warn that the situation is deteriorating. No matter which way the vote goes, the future is far from certain.

So how did Greece get into this situation?

The New Paper explains...

Greece, Euro, debt, austerity, explainedGreece, Euro, debt, austerity, explained

TNP INFOGRAPHICS: LEE HUP KHENG AND BILLY KER

1 Greece joined Europe’s Economic and Monetary Union in 2001 (and converted to the euro). This allowed it to borrow vast sums of money that it could not have on its own.

It went on a spending spree propping up an extremely generous pension and welfare schemes that were impossible to maintain. It also used the funds to pay generous amounts to its bloated public service.

2 Government revenue is also weak because many people and businesses dodge paying taxes.

When the economic crisis struck in 2009, it exposed how much money Greece owed — 350 billion euros or the equivalent of... S$524 billion

4 If Greece went bust, it could affect the European Union countries, especially Germany and France whose banks were its biggest creditors.

5 A 110 billion euro bailout with money from the European Union, the European Central Bank and the International Monetary Fund (IMF) was given in 2010.

But the three, dubbed the troika, set tough austerity targets of spending cuts, tax rises and structural reforms in return for the help.

It’s ironic because Greece had to borrow money to pay off borrowed money. Critics of the move have argued this form of help is flawed for this reason.

Another 130 billion euros was injected two years later in 2012 when the initial amount proved insufficient.

6 Though the money helped in the early stages, much of it went to repay creditors.

When harsh spending cuts in areas such as education, defence and pensions caused reduced incomes, layoffs and the failure of businesses, there was little money to provide welfare or economic support to revive the economy. There were periodic riots as the measures started to bite.

The Greek government also did not make enough structural changes needed to help the economy and bring in revenue and investments.

7 Today, unemployment has more than doubled since 2009 to 25.9 per cent and pensions and benefits were roughly halved between 2010 and 2014.

After five years, the Greeks had enough. They voted in Prime Minister Alexis Tsipras and his Syriza party in January. It campaigned that it could deliver the same financial aid with fewer of the austere cuts than its predecessors.

But money is running out again. On Tuesday, Greece did not repay the IMF 1.6 billion euros that was due as part of its earlier bailout.

The troika has said that it will consider a new bailout if Greece accepts new tough austerity conditions. The new Greek government, however, said it will accept the bailout only on terms favourable to them, meaning drastically cutting down austerity conditions.

And it has called for a referendum, scheduled for Sunday, asking the Greek people if they should accept or reject it.

If the Greek people reject it, then there will no more money coming in to prop up its banks and the economy. This could lead to Greece’s exit from the European Union.

If it accepts it, then the economy will be propped up but tough austerity measures will once again kick in and its new government, which campaigned on reducing the painful measures, may fall.

SOURCE: TELEGRAPH, GUARDIAN, NEW YORK TIMES, NEWCOM.AU, REUTERS AND AFP

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HOW IT AFFECTS US

The economic crisis in Greece can have and already has an impact on Singapore's financial market, said economist Song Seng Wun.

"Everything seems to be relatively calm for now as most people would have already braced themselves and factored in the possible risks, but nothing has been set in stone yet.

"Even with the results of the referendum (to cut down austerity conditions), it will only lead to more ambiguity to the already existing state of uncertainty.

"Singapore's economic growth depends on global economic growth, and so we might witness more conservative spending amongst businesses and consumers. This will slow down global growth and in turn affect Singapore's growth as well," Mr Song told The New Paper.

International economics professor J. Soedradjad Djiwandono expects that while local economic growth might slow down, Singapore will still be able to pull through.

"Singapore has always been resilient in the face of external turmoil and I think it will continue that way," said Dr Djiwandono, who teaches in the S. Rajaratnam School of International Studies.

"Of course, the weak property market, restructuring of several financial institutions, as well as other institutions that are facing stringent regulation with their 'derisking', will be forced to be more cautious with the Greece default and its ramifications.

"But in general, the new normal would include lower than usual growth as more countries will be focusing on domestic consumption.

"The South-east Asian region, which has been prospering through exports, will have to make adjustments to the possibility of reduced trade imports from countries like China."

Associate professor Davin Chor also notes that growth within Europe might be more severe, but the rest of the world will have to watch out for a domino effect.

"The current fiasco could drag down growth in the European Union, which has struggled to pick up growth momentum since the global financial crisis.

"Any negative spillover effects from a possible default and Greece exiting the euro zone would be unwelcome at this time," said Mr Chor, who teaches in the department of economics at the National University of Singapore.

- Tryne Ong

Minister may quit if Greece says yes to cuts

Greece's radical left government said yesterday it may resign if it fails to win a referendum that could decide the country's financial future.

Finance Minister Yanis Varoufakis said the government "may very well" quit if the public went against it in Sunday's plebiscite and voted for more austerity in return for international bailout funds, AFP reported.

"We are on a war footing" to ensure the rushed referendum happens on time, Mr Varoufakis added in the radio interview.

But European chiefs warned the situation was deteriorating and what could emerge after the vote remained unclear.

"The situation is only getting worse, due to the Greek government's behaviour," said Mr Jeroen Dijsselbloem, Dutch finance minister and head of the Eurogroup of eurozone finance ministers.

"In case of a 'No', Greece's situation will become exceptionally difficult," he told Dutch lawmakers.

Everything seems to be relatively calm for now as most people would have already braced themselves and factored in the possible risks, but nothing has been set in stone yet.

— Economist Song Seng Wun, on the impact of the Greek crisis on Singapore’s financial market

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