The Chinese stock market turbulence began with the popping of the on 12 June 2015 and ended in early February 2016. A third of the value of on the was lost within one month of the event. Major aftershocks occurred around 27 July and 24 August's "Black Monday". By 8–9 July 2015, the had fallen 30 percent over three weeks as 1,400 companies, or more than half listed, filed for a trading halt in an attempt to prevent further losses.Values of continued to drop despite efforts by the government to reduce the fall. After three stable weeks the Shanghai index fell again on 24 August by 8.48 percent, marking the largest fall since 2007.

At the October 2015 (IMF) annual meeting of "finance ministers and central bankers from the Washington-based lender's 188 member-countries" held in Peru, China's slump dominated discussions with participants asking if "China's economic downturn [would] trigger a new financial crisis."

By the end of December 2015 China's stock market had recovered from the shocks and had outperformed for 2015, though still well below the 12 June highs. By the end of 2015 the was up 12.6 percent. In January 2016 the Chinese stock market experienced a steep sell-off and trading was halted on 4 and 7 January 2016 after the market fell 7%, the latter within 30 minutes of open. The market meltdown set off a global rout in early 2016.

According to 19 January 2016 articles in the , the official press agency of the , China reported a 6.9 percent GDP growth rate for 2015 and an "economic volume of over ten trillion U.S. dollars". Forbes journalist argues that the "stock market crash does not indicate a blowout of the Chinese physical economy." China is shifting from a focus on manufacturing to service industries and while it has slowed down, it is still growing by 5%. After this last turbulence, as of January 2017 the Shanghai Composite Index has been stable around 3,000 points, 50% more than before the bubble.

Background[]

Following a period of closure during the early history of the , the modern stock market in China reemerged in the early 1990s with the re-opening of the , and founding of the Security Exchange. By 2000, the Chinese stock market had over 1,000 listed companies, worth a of nearly a third of China's overall (GDP), and by the end of 1998, investors had opened nearly 40 million investment accounts. As more companies went public, investors rushed to the Shanghai and Shenzhen exchanges. The Chinese stock market and economy grew quickly,[] and by 2012, the number of listed companies between the Shanghai and Shenzhen Securities Exchanges had risen to over 2,400, worth a market capitalization of nearly 50% of China's real GDP, and included over 200 million active stock and mutual fund accounts.

China's economic growth, however, was stunted by the and its aftershocks. The Chinese government responded to 2008 recession with a that would draw resources from both the public and private sectors in order to fund an unprecedented build. Intended to draw business from around the world and project the Chinese economy towards the growth it had seen before the recession, it instead resulted in vacant skyscrapers, deserted roads and large debt. Though a resurgence in the stock market helped the economy, the effects of the 2008 recession and failed stimulus package lingered. From 2009 to 2011, real GDP growth in China decreased to approximately 9.6%, and in the two years that followed, real GDP grew at a rate of just 7.7%.

Seeing the opportunity for a nationwide reinvestment into the economy through the stock market, the government developed a campaign that would entice everyday citizens to trade – it was referred to as "Zhongguomeng," which translates to the "." First conceived and pushed by the President of China, , the 'dream' was one of overall economic prosperity and an elevated international status. After experiencing the worst global recession in decades, the entire country got behind the movement. With a passionate, profit-seeking population at its fingertips, the Chinese government began making the claim that the stock market was the "best place to make the 'China Dream' come true," and soon, new traders flooded the market.

The trading population that developed in China differed in important ways from those elsewhere in the world. In China, the stock market trading activity is dominated by individual investors (close to 85%) – also known as '.' Indicative of the sheer size of investor inflow into the markets, after several months of a developing in China, more than 30 million new accounts were opened by retail investors in the first 5 months of 2015, according to data from the China's Securities Depository and Clearing Corp. And while a larger, more active investing population generally means greater market capitalization, many of these new traders were inexperienced and easily manipulated by the buying frenzy, with nearly two thirds having never entered or graduated high school, according to a survey by China's Southwestern University of Finance and Economics. As a result, momentum and rumors among the traders carried more weight than reason when it came to investing decisions, creating a trend of impulsive buying and overvaluation in the market.

Leading up to the crash, in an attempt to free up additional money for trading, the (CSRC), responsible for proposing and enforcing securities laws, had loosened several related financial regulations. Prior to significant policy reform in 2010, the act of – essentially, borrowing and selling stock with the belief that its price will fall – and trading on – trading with debt – were strictly prohibited in China. However, in March 2010, China implemented a testing phase for their stock exchange in which 90 selected companies were authorized to be sold short and traded on margin. This list was expanded over time, with over 280 companies being given the same authorization in late 2011. Shortly thereafter, the CSRC implemented a total policy shift which legalized both practices across the entire stock market. These regulation changes led to significant increases in borrowing for the purpose of trading, and short selling became the most popular investing strategy among traders. From 2010, when the changes were implemented, to 2012, average daily short turnover increased from 0.01% to 0.73%, and average daily margin purchase turnover increased from 0.78% to 5.15%. As a result, the Chinese market was being flooded with debt-funded trades and risky short selling plays.

To make matters worse, the CSRC also became a regulatory bystander, refusing to take action that would upset the political and social stability of the time. Instead of de-listing public companies that failed to perform for three consecutive quarters – a well-known regulation in China – the CSRC would regularly let those companies slide for fear of upsetting the shareholders. This added to the flames of bad investing, allowing investors to continue pouring their money into companies that were underperforming and overvaluing shares that were essentially worthless on the books.

2015[]Chinese RMB[]

According to data, by November 2014 China's (RMB) – also known as the – "became one of the world's top five payment currencies...overtaking the Canadian dollar and the Australian dollar."

On 11 August, two months after the turbulence, the devalued the RMB - by 1.86 percent to CN¥6.2298 per US dollar. A lower renminbi (RMB) "makes China's exports more competitive in foreign markets, offsetting part of the surge in the country's blue-collar wages over the last decade; and it makes foreign companies, houses and other overseas investments seem more expensive." On 14 August, the central bank devalued it again to CN¥6.3975 per US dollar. In August there was speculation about the causes of the devaluation of the yuan and the changes in the Chinese economy in 2015, including the "growth in its services sector rather than heavy industry." By mid-January 2016, an article in argued that the strains on the yuan indicated a problem with China's politics. However, a spokesperson for the (IEA) argued that the risk was "overplayed". During the drastic sell-off on 7 January 2016 China's central bank, the set the official midpoint rate on RMB to its lowest level since March 2011—at CN¥6.5646 per US dollar.

On 8 October 2015 China launched a new clearing system developed by the (PBOC) - (CIPS) - to settle cross-border RMB transactions and intended to "increase global usage of the Chinese currency," by "cutting transaction costs and processing times" and removing "one of the biggest hurdles to internationalizing the yuan". Because of the stock market turbulence, the launch had been delayed and CIPS was '"watered down" offering, a "complementary network for settling trade-related deals in the Chinese currency to a current patchwork of Chinese clearing banks around the world".

By December 2015, the RMB was still the "fifth most used global payments currency and the second most used currency for trade finance" with 27 per cent of China's goods invoiced in RMB compared to 19 per cent in 2014. In December China was the world's largest exporter. By October 2016, the Renminbi will be added to the currency basket, the assets defined and maintained by the , which includes the , , and . The IMF's decision to add the RMB to the SDR, was "crucial to global financial stability" as it would encourage China to "continue to be a responsible global citizen and liberalise its exchange rate, while intervening to ensure a gradual decline".

China's PMI[]

In August 2015, - a closely watched gauge of nationwide manufacturing activity - announced that the China (PMI) had declined to 51.5. This was the beginning of a decline that continued into December 2015 with the PMI falling below 50 - anything below 50 indicates deceleration. PMIs are indicators derived from monthly surveys of companies' purchasing managers and is produced by the financial information firm, , which compiles the survey and conducts PMIs for over 30 countries worldwide. From 2010 to 2015 had sponsored Markit's China PMI, but that relationship ended in June and Caixin stepped in.

By 2016 the PMI was down for the fifth month indicating a cooling in manufacturing in China. Manufacturing activity is a key sign of economic performance. December was the tenth month in a row that manufacturing in China had contracted raising concerns that China's economy was not on steadier footing. It was seen as the most recent indication of slowing global economic growth. Since China is the world's largest metal consumer and producer,:11 and "the world's second largest economy", the China PMI is closely watched. This 2016 selling frenzy was fueled by the most recent private survey of factory activity, the December 2015 report by on China's (PMI) reading which showed that China's manufacturing activity had slowed again in December 2015 to a PMI reading of 48.2 - with anything below 50 indicating deceleration.

Stock market bubble[]

In the year leading up to the turbulence, encouraged by state-owned media, enthusiastic individual investors inflated the stock market bubble through mass amounts of investments in stocks often using borrowed money, exceeding the rate of economic growth and profits of the companies they were investing in.

Investors faced on their stocks and many were forced to sell off shares in droves, precipitating the turbulence.

"...from June 2014 to June 2015, prices increased more than 150 percent on the Shanghai exchange, and even more on the Shenzhen Stock Exchange and the Shenzhen ChiNext board, a Nasdaq-style marketplace. An unusually large part of this run-up was fueled by retail investors who borrowed to buy equities. The market was priced way beyond perfection. Once prices fell even slightly, many of these investors found themselves needing to sell, leading to a sharp market correction."

— Nicholas Lardy New York Times 26 August 20152015 Government response[]

The Chinese government enacted many measures to stem the tide of the turbulence. Regulators limited under threat of arrest. Large mutual funds and pension funds pledged to buy more stocks. The government stopped . The government also provided cash to brokers to buy shares, backed by central-bank cash. Because the Chinese markets mostly comprise individuals and not institutional funds (80 percent of investors in China are individuals), state-run media continued to persuade its citizens to purchase more stocks. In addition, (CSRC) imposed a six-month ban on stockholders owning more than 5 percent of a company's stock from selling those stocks, resulting in a 6 percent rise in stock markets. Further, around 1,300 total firms, representing 45 percent of the stock market, suspended the trading of stocks starting on 8 July.

contributor Jesse Colombo contended that the measures undertaken by the Chinese government, along with cutting the interest rate, "allowing the use of property as collateral for margin loans, and encouraging brokerage firms to buy stocks with cash from the People's Bank of China" caused Chinese stocks to begin surging in mid-July. He argued that in general, however, the outcomes of government intervention as it relates to the turbulence will, by its nature, be difficult to predict, but saying that in the longer term, the effect may be the development of an even larger bubble through creation of a .

As of 30 August, the Chinese government arrested 197 people, including a Wang Xiaolu, a journalist at the "influential financial magazine ," and stock market officials, for "spreading rumours" about the market crash and . The crime of spreading rumours carries a three-year jail sentence after its introduction in 2013.

The government officials accused "foreign forces" of "intentionally [unsettling] the market" and planned crackdown on them.

On 1 November billionaire hedge fund manager, - known as China's , or China's - was arrested for allegedly manipulating the stock market during the 2015 Chinese stock market turbulence.

According to Caixin media, "Calls for China to adopt a circuit breaker mechanism gained momentum after a stock market rout in the summer that saw the Shanghai Composite Index, which tracks the stock prices of all companies listed in the city, plunge from more than 5,000 points in mid-June to less than 3,000 in late August."

Black Monday and Tuesday[]

On 24 August, Shanghai main share index lost 8.49% of its value. As a result, billions of pounds were lost on international with some international commentators labeling the day . There were similar losses of over 7% on 25 August causing some commentators to call it .

World finance response[]

In the week prior to Black Monday, the had fallen over concerns about the yuan, low gas prices, and uncertainty over the U.S. 's moves to raise . On Black Monday, the Dow dropped 1000 points at opening, the largest drop ever.

magazine estimated that the potential negative impact on the United States may come about when Chinese investors begin to seek out relatively stable U.S. investments in , stocks, and cash, and further strengthen an already-strong , thereby raising the prices on U.S. goods and diminishing export profits.

Global companies that relied on the Chinese market suffered from the turbulence. Stocks that they own were devalued 4,000,000,000,000. For example, French alcoholic beverage company, , and British luxury-goods company, , saw their shares devalued and declining demand of their imports from Chinese distributors. Second-quarter sales of American fast food company, , in China dropped 10 percent, resulting in revenue going under the company's estimate. South African ore mining company, , eliminated its on 21 July as the 61 percent loss of profit in the first half of the year was announced.

On 19 January 2016 the (BoE) Governor cited "Chinese growth hitting a 25-year low" as one of the reasons the BoE will likely not "raise rates until the second half of this year at the earliest" during his talk at in London.

An article in the Guardian argued that "American commentators relentlessly push a "China-led slowdown" narrative, but the reality is that the US is a relatively insulated economy. Yes – Chinese equities have fallen sharply in recent months, yet the Shanghai Composite Index of leading stocks remains 40pc up on its level just 18 months ago. This is a home-grown US slowdown, much as it pains America to admit it."

Commentator response[]

Some mass media outlets had alarmist headlines in August 2015, with comparing the pattern of losses during China's Black Monday to the , and an article in about , a former adviser to British Prime Minister , calling on people to stock up on canned food because the coming crash would be twenty times worse than the . Others such as questioned its severity. , of the United Kingdom, said that the Chinese stock market turbulence will not have a big impact on European economies.

journalist Nathan Vanderklippe argued that "To understand the devaluation of the yuan and the changes in the Chinese economy today, look to the growth in its services sector rather than heavy industry." Vanderklippe described the new economy as "the investment banks, restaurant chains and airlines that make up the services sector". In 2014 the service industry in China increased to represent 44.6 per cent of the economy. (In the United States the service industry represents 80%, in Canada, roughly 70 per cent and in India, 57 per cent of the economy.) By 17 August 2015 the services sector in China which includes "hotels, banks, cellphone providers and spas" was thriving. "In the first half of 2015, the GDP among services rose 8.4 per cent, some 2 1/2 times the growth rate in the primary, or extractive, sector."

"The relationship between industrial growth and GDP growth [in China] has completely broken down...The change is profound, but 'grossly underappreciated.'"

— Nicholas Lardy Peterson Institute for International Economics

As China experienced a period of stock market turbulence in the summer of 2015 worsened by "economic weakness, financial panic, and the policy response to these problems," disagreed with those who claimed that China was the "global economy's weakest link". He claimed that "weak economic data leads to financial turmoil, which induces policy blunders that in turn fuel more financial panic, economic weakness, and policy mistakes."

According to , China had a "record trade surplus of $595 billion in 2015". However, in the "last six months of 2015 capital left China at an annualised rate of about $1 trillion."

According to an article in the ,

"China is the wild card. It borrowed huge amounts to stimulate its economy, leading to serious overcapacity in everything from factories to luxury apartments. The unwinding of this binge is one of the causes of the current market turmoil."

— Justin Lahart Wall Street Journal 15 January 2016

Neil Atkinson of the (IEA), was cited in in January 2016 arguing that although the sell-off in oil in January "occurred concurrently with a slide in the Chinese stock market and the yuan which some investors think reflects weakness in China's economy and hence in demand for oil," the risk is "overplayed". "[F]igures on January 13th showed China imported a record 6.7m barrels a day (b/d) of oil in 2015."

According to Nicholas Lardy, "an author of Markets Over Mao: The Rise of Private Business in China and fellow at the who has written extensively on the development of the Chinese economy," the "popular narrative" that China is in "a financial and economic meltdown" "is not well supported by the facts". "[S]ervices, not industry, are driving China's growth." Lardy explained the rout in August as an overdue correction in China's equity market.

January 2016 global meltdown[]

On both 4 January and 7 January 2016 the Chinese stock market experienced a sharp sell-off of about 7% that quickly sent stocks tumbling globally. From 4 January to 15 January, China's stock market fell 18% and the was down 8.2%.

During the first fifteen minutes of the first day of trading in the Chinese stock exchange, the "stock market fell by 5% before leading regulators halted trading. It was reopened for another fifteen minutes and stocks fell until trading was again halted." "The blue-chip CSI 300 Index dropped 7% while the benchmark Shanghai Composite index fell 6.9%. The technology-heavy Shenzhen Composite was the worst performer and fell by more than 8%."

2016 China Securities Regulatory Commission response[]

On 4 January 2016 stock markets in China fell to the point of triggering its new rule, a market mechanism that halts trading when losses reach a threshold which is intended to help stabilize stocks, for the first time. In comparison, in the United States the trading curb rule or circuit breaker was first applied in the during the . During that mini-crash, many exchanges fell and the dropped 7.18% in value but recovered quickly.

A spokesperson for the CSRC argued that the rules for the trading curb differed from those in the United States; in the U.S. the emphasis is on preventing systemic risk. "We had to consider there is more speculation and irrational investment behavior" because China has more individual investors than the United States." According to an article in —unlike most major markets—millions of individual investors dominate the Chinese stock market, driving "more than 80 percent of trading on bourses in Shanghai and Shenzhen, versus about 15 percent in the U.S." An article in claims that these "unsophisticated" Mom and Pop retail investors tend to "over-react", "mis-read signals," and buy and sell on speculative instincts.

The trading curb ruled was put in operation after the first 27 minutes of trading on the Chinese stock exchange on Thursday, 7 January, as Chinese stocks plunged 7 percent.

In a surprise move on 7 January 2016, China's central bank, the set the official midpoint rate on the yuan, also known as the renminbi (RMB), to its lowest level since March 2011—at CN¥6.5646 per US dollar. A lower renminbi (RMB) "makes China's exports more competitive in foreign markets, offsetting part of the surge in the country's blue-collar wages over the last decade; and it makes foreign companies, houses and other overseas investments seem more expensive."

On 7 January, Chinese authorities suspended the circuit breaker out of concern that the trade curb may "have intensified investors' concerns".

On 16 January 2016 Xiao Gang the head of China Securities Regulatory Commission defended the CSRC's crisis management of the "abnormal volatility in the stock market". Xiao "promised to crack down on illegal activities, increase market transparency and better educate investors" in a period with "rising uncertainty in external markets, including the global equity-market slump, plummeting commodities prices and currency devaluations in emerging markets".

2016 Commentators[]

Data from surveys compiled by the financial information firm, showed that China's PMI was 48.2 in December, 2015 down from 48.6 in November, 48.3 in October, September is 50.5 and 51.5 in August. The October report was encouraging but the December report dampened hopes for recovery and triggered fears for China's overall economy. and markets around the world responded.

On Friday, 1 January 2016 reported that China's factory activity continued to decline, overseas demand for goods fell and export orders for Chinese manufacturers fell. Stock markets which had already responded by mid-December with "metals [experiencing] a broad-based drop on the weakness of manufacturing activity in China,:11 According to the (ISM), a group of purchasing managers which conducts PMIs, the US also had a PMI of 48.2 in December down from 48.6 in November. The October PMI was 50.1 in October. Whereas China has experienced a gradual decline since late 2014, the United States last decline was in November 2012. But the December 2015 US PMI was "the lowest since the end of the recession and marks the first time since 2009 for consecutive months in contraction territory". The slower manufacturing activity in the United States was blamed on the strong US dollar, a weak global economy, low oil prices and excessive inventories.

In October 2015 Caixin China General Services PMI reported that "Chinese business activity [had declined] at its quickest rate since start of 2009".

"In the group of non-energy commodities, metals experienced a broad-based drop on the weakness of manufacturing activity in China while agriculture prices were also generally down. Precious metals showed their largest drop since 2013 on firmer expectations of interest rate hikes in the US.

— "OECD December 2015January 2016 global rout[]

The sell-off on the Chinese stock market "set off a global rout, with stocks in Europe and the United States getting hit," with many stocks down 2% to 3%. The German stock index, the its blue-chip shares index slumped to 9979 points on 7 January "falling below the psychologically important 10,000-point threshold" which represents 2.29 percent fall from 6 January. By 3:22 Monday on 4 January in New York the " had fallen 2.2%, the " 2.1%, and 2.6%," pan-European Stoxx Europe 600 index 2.5%, Shanghai Composite Index 6.9% and the "Vanguard FTSE Emerging Markets Exchange-Traded Fund lost 3.3%." US stocks such as Netflix fell by 6%, Alphabet 3.9% and Facebook 3.9%. On the same day "the Brazilian real fell 2% against the dollar and Brazilian equities dropped 1.6% to 42,646.19, its lowest since March 16, 2007."

Bloomberg debate on China at Davos 2016[]

At the 2016 conference in , hosted by Bloomberg, which included panelists of the (IMF), of , of , CEO , China Securities Regulatory Commission (CSRC) Vice Chairman and of the , they discussed volatility and transitions. Zhang Xin noted

"...a total decoupling of the stock markets as a realty state developer—which is hugely discounted—and the real economy where you see the easing of monetary policy is actually pushing the asset price up...In terms of transition from investment-driven economy to consumption-driven economy for real estate that means that we used to build buildings and today we just manage the leasing... In terms of leasing actually it is going quite well. In cities I operate in—Beijing and Shanghai—we're seeing a massive take-up of new space from [mostly] Internet companies. We're seeing not so much new take-off from the old economy, like non-internet traditional economy. But by and large we have new buildings coming up in the market everyday... We haven't seen a single building empty, not being taken up. So I think there must be a communication issue because on the one hand the real economy seems to be doing OK but on the other hand, the stock market is trading at a huge discount. Obviously the investors are not getting the same message as we [who are] operating is doing."

— Zhang Xin CEO of Soho China, Davos Bloomberg Panel 2016

The Greek government-debt crisis (also known as the Greek ) is the faced by Greece in the aftermath of the . The Greek crisis started in late 2009, triggered by the turmoil of the , structural weaknesses in the , and revelations that previous data on levels and deficits had been undercounted by the Greek government.

This led to a crisis of confidence, indicated by a widening of and rising cost of risk insurance on compared to the other , particularly Germany. The government enacted 12 rounds of tax increases, spending cuts, and reforms from 2010 to 2016, which at times triggered local riots and nationwide protests. Despite these efforts, the country required bailout loans in 2010, 2012, and 2015 from the , , and , and negotiated a 50% "" on debt owed to private banks in 2011. After a popular referendum which rejected further austerity measures required for the third bailout, and after closure of banks across the country (which lasted for several weeks), on June 30, 2015, Greece became the first to fail to make an IMF loan repayment. At that time, debt levels had reached €323bn or some €30,000 per capita.

Contents [] Overview[]Further information: Relative change in unit labour costs, 2000–2012Real unit labour costs: total economy (Ratio of compensation per employee to nominal GDP per person employed.)

The 2001 introduction of the euro reduced trade costs among Eurozone countries, increasing overall trade volume. Labour costs increased more (from a lower base) in peripheral countries such as Greece relative to core countries such as Germany, eroding Greece's competitive edge. As a result, Greece's rose significantly.

A trade deficit means that a country is consuming more than it produces, which requires borrowing/direct investment from other countries. Both the Greek and rose from below 5% of in 1999 to peak around 15% of GDP in the 2008–2009 periods. One driver of the investment inflow was Greece's membership in the EU and the Eurozone. Greece was perceived as a higher alone than it was as a member of the EU, which implied that investors felt the EU would bring discipline to its finances and support Greece in the event of problems.

As the spread to Europe, the amount funds lent from the European (e.g. Germany) to the peripheral countries such as Greece began to decline. Reports in 2009 of Greek fiscal mismanagement and deception increased ; the combination meant Greece could no longer borrow to finance its and at an affordable cost.

A country facing a "sudden stop" in private investment and a high (local currency) load typically allows its currency to to encourage investment and to pay back the debt in cheaper currency. This was not possible while Greece remained on the Euro. Instead, to become more competitive, Greek wages fell nearly 20% from mid-2010 to 2014, a form of . This significantly reduced income and GDP, resulting in a severe , decline in tax receipts and a significant rise in the . Unemployment reached nearly 25%, from below 10% in 2003. Significant government spending cuts helped the Greek government return to a primary by 2014 (collecting more than it paid out, excluding ).

Causes[]

In January 2010, the published Stability and Growth Program 2010. The report listed five main causes, poor GDP growth, government debt and deficits, budget compliance and data compatibility. Causes found by others included excess government spending, current account deficits and tax avoidance.

GDP growth[]

After 2008, GDP growth was lower than the had anticipated. The Greek Ministry of Finance reported the need to improve competitiveness by reducing salaries and bureaucracyand to redirect governmental spending from non-growth sectors such as the military into growth-stimulating sectors.

The global financial crisis had a particularly large negative impact on GDP growth rates in Greece. Two of the country's largest earners, tourism and shipping were badly affected by the downturn, with revenues falling 15% in 2009.

Government deficit[]

Fiscal imbalances developed from 2004 to 2009: "output increased in nominal terms by 40%, while central government primary expenditures increased by 87% against an increase of only 31% in tax revenues." The Ministry intended to implement real expenditure cuts that would allow expenditures to grow 3.8% from 2009 to 2013, well below expected inflation at 6.9%. Overall revenues were expected to grow 31.5% from 2009 to 2013, secured by new, higher taxes and by a major reform of the ineffective tax collection system. The deficit needed to decline to a level compatible with a declining debt-to-GDP ratio.

Government debt[]

The debt increased in 2009 due to the higher than expected government deficit and higher debt-service costs. The Greek government assessed that structural economic reforms would be insufficient, as the debt would still increase to an unsustainable level before the positive results of reforms could be achieved. In addition to structural reforms, permanent and temporary (with a size relative to GDP of 4.0% in 2010, 3.1% in 2011, 2.8% in 2012 and 0.8% in 2013) were needed. Reforms and austerity measures, in combination with an expected return of positive economic growth in 2011, would reduce the baseline deficit from €30.6 billion in 2009 to €5.7 billion in 2013, while the debt/GDP ratio would stabilize at 120% in 2010–2011 and decline in 2012 and 2013.

After 1993, the debt-to-GDP ratio remained above 94%. The caused the debt level to exceed the maximum sustainable level (defined by economists to be 120%). According to "The Economic Adjustment Programme for Greece" published by the EU Commission in October 2011, the debt level was expected to reach 198% in 2012, if the proposed debt restructure agreement was not implemented.

Budget compliance[]

Budget compliance was acknowledged to need improvement. For 2009 it was found to be "a lot worse than normal, due to economic control being more lax in a year with political elections". The government wanted to strengthen the monitoring system in 2010, making it possible to track revenues and expenses, at both national and local levels.

Data credibility[]

Problems with unreliable data had existed since Greece applied for Euro membership in 1999. In the five years from 2005 to 2009, each year noted reservations about Greek fiscal data. Previously reported figures were consistently revised down.The flawed data made it impossible to predict GDP growth, deficit and debt. By the end of each year, all were below estimates. Data problems were evident in several other countries, but in the case of Greece, the magnitude of the 2009 revisions increased suspicion about data quality.

In May 2010, the Greek government deficit was again revised and estimated to be 13.6%, the second highest in the world relative to GDP behind at 15.7% and third at 12.6%. The government forecast public debt to hit 120% of GDP during 2010. The actual ratio was closer to 150%.

The revised statistics revealed that Greece from 2000 to 2010 had exceeded the Eurozone stability criteria, with yearly deficits exceeding the recommended maximum limit at 3.0% of GDP, and with the debt level significantly above the limit of 60% of GDP.

Government spending[]Combined charts of Greece's GDP and debt since 1970; also of deficit since 2000. Absolute terms are in current euros. Public deficit (brown) worsened to 10% in 2008, 15% in 2009 and 11% in 2010. As a result, the public debt-to-GDP ratio (red) rose from 109% in 2008 to 146% in 2010.

The Greek economy was one of the Eurozone's fastest growing from 2000 to 2007, averaging 4.2% annually, as foreign capital flooded in. This capital inflow coincided with a higher budget deficit.

Greece had budget surpluses from 1960–73, but thereafter it had budget deficits. From 1974–80 the government had budget deficits below 3% of GDP, while 1981–2013 deficits were above 3%.

An editorial published by claimed that after the removal of the in 1974, Greek governments wanted to bring left-leaning Greeks into the economic mainstream and so ran large deficits to finance military expenditures, public sector jobs, pensions and other social benefits.

As a percentage of GDP, Greece had the second-biggest defense spending in , after the US.

Pre-Euro, currency helped to finance Greek government borrowing. Thereafter the tool disappeared. Greece was able to continue borrowing because of the lower interest rates for Euro bonds, in combination with strong GDP growth.

Current account balance[]Current account imbalances (1997–2014)

Economist wrote, "What we're basically looking at...is a balance of payments problem, in which capital flooded south after the creation of the euro, leading to overvaluation in southern Europe" and "In truth, this has never been a fiscal crisis at its root; it has always been a balance of payments crisis that manifests itself in part in budget problems, which have then been pushed onto the center of the stage by ideology."

The translation of trade deficits to budget deficits works through . Greece ran current account (trade) deficits averaging 9.1% GDP from 2000–2011. By definition, a trade deficit requires capital inflow (mainly borrowing) to fund; this is referred to as a capital surplus or foreign financial surplus. This can drive higher levels of government budget deficits, if the private sector maintains relatively even amounts of savings and investment, as the three financial sectors (foreign, government, and private) by must balance to zero.

Greece's large budget deficit was funded by running a large foreign financial surplus. As the inflow of money stopped during the crisis, reducing the foreign financial surplus, Greece was forced to reduce its budget deficit substantially. Countries facing such a sudden reversal in capital flows typically devalue their currencies to resume the inflow of capital; however, Greece was unable to do this, and so has instead suffered significant income (GDP) reduction, another form of devaluation.

Tax evasion[]Further information:

Tax receipts consistently were below the expected level. In 2010, estimated tax evasion losses for the Greek government amounted to over $20 billion. 2013 figures showed that the government collected less than half of the revenues due in 2012, with the remaining tax to be paid according to a delayed payment schedule.[]

Greece scored 36/100 according to 's , ranking it as the most corrupt country in the EU. One bailout condition was to implement an anti-corruption strategy. The government's activities improved their score of 43/100 in 2014, still the lowest in the EU, but close to that of Italy, Bulgaria and Romania.

It is estimated that the amount of evaded taxes stored in Swiss banks is around 80 billion Euro. In 2015 a tax treaty to address this issue was under negotiation between the Greek and Swiss government.

Data for 2012 places the Greek "black economy" at 24.3% of GDP, compared with 28.6% for Estonia, 26.5% for Latvia, 21.6% for Italy, 17.1% for Belgium and 13.5% for Germany (which partly correlates with the high percentage of Greeks who are self-employed vs. 15% EU average, – several studies have shown a clear correlation between tax evasion and self-employment).

Chronology[]Main article: 2010 revelations and IMF bailout[]

Despite the crisis, the Greek government's bond auction in January 2010 of €8 bn 5-year bonds was 4x over-subscribed. The next auction (March) sold €5bn in 10-year bonds reached 3x. However, yields increased, which worsened the deficit. In April 2010, it was estimated that up to 70% of Greek government bonds were held by foreign investors, primarily banks.

In April, after publication of GDP data which showed an intermittent period of recession starting in 2007, then downgraded Greek bonds to status in late April 2010. This froze private capital markets, and put Greece in danger of without a bailout.

On 2 May, the , (ECB) and (IMF) (the ) launched a €110 billion bailout loan to rescue Greece from and cover its financial needs through June 2013, conditional on implementation of , structural reforms and privatization of government assets. The bailout loans were mainly used to pay for the maturing bonds, but also to finance the continued yearly budget deficits.[]

Greece's debt percentage since 1977, compared to the average of the Fraudulent statistics[]

To keep within the , the government of Greece for many years simply misreported economic statistics. At the beginning of 2010, it was discovered Goldman Sachs and other banks helped the Greek government to hide its debts. Christoforos Sardelis, former head of Greece's , said that the country did not understand what it was buying. He also said he learned that "other EU countries such as Italy" had made similar deals.

Most notable was a , where billions worth of Greek debts and loans were converted into yen and dollars at a fictitious exchange rate, thus hiding the true extent of Greek loans. Swaps were not registered as debt because statistics did not include financial derivatives. A German derivatives dealer commented, "The rules can be circumvented quite legally through swaps," and "In previous years, Italy used a similar trick to mask its true debt with the help of a different US bank." These conditions enabled Greece and other governments to spend beyond their means, while ostensibly meeting EU deficit targets.

The European statistics agency, Eurostat, had at regular intervals from 2004-2010, sent 10 delegations to Athens with a view to improving the reliability of Greek statistical figures. In January it issued a report that contained accusations of falsified data and political interference. The Finance Ministry accepted the need to restore trust among investors and correct methodological flaws, "by making the National Statistics Service an independent legal entity and phasing in, during the first quarter of 2010, all the necessary checks and balances".

The new government of revised the 2009 deficit from a previously estimated 6%–8% to 15.7% of GDP, using Eurostat's standardized method. The figure for Greek government debt at the end of 2009 increased from its first November estimate at €269.3 billion (113% of GDP) to a revised €299.7 billion (130% of GDP). This was the highest for any EU country. After an in-depth . Eurostat announced in November 2010 that the revised figures for 2006–2009 finally were considered to be reliable.

2011[]

A year later, a worsened recession along with poor implementation by the Greek government of the agreed bailout conditions forced a second bailout worth €130 billion. This included a bank recapitalization package worth €48bn. Private bondholders were required to accept extended maturities, lower interest rates and a 53.5% reduction in the bonds' face value.

On 17 October 2011, announced that the government would establish a new fund, aimed at helping those who were hit the hardest from the government's austerity measures. The money for this agency would come from a crackdown on . The government agreed to creditor proposals that Greece raise up to €50 billion through the sale or development of state-owned assets, but receipts were much lower than expected, while the policy was strongly opposed by Syriza. In 2014, only €530m was raised. Some key assets were sold to insiders.

2012[]

The second bailout programme was ratified in February 2012. A total of €240 billion was to be transferred in regular tranches through December 2014. The recession worsened and the government continued to dither over bailout program implementation. In December 2012 the Troika provided Greece with more debt relief, while the IMF extended an extra €8.2bn of loans to be transferred from January 2015 to March 2016.

2014[]

The fourth review of the bailout programme revealed unexpected financing gaps. In 2014 the outlook for the Greek economy improved. The government predicted a in 2014, opening access to the private lending market to the extent that its entire financing gap for 2014 was covered via private .

Instead a fourth recession started in Q4-2014. The parliament called s in December, leading to a -led government that rejected the existing bailout terms. The Troika suspended all scheduled remaining aid to Greece, until the Greek government retreated or convinced the Troika to accept a revised programme. This rift caused a liquidity crisis (both for the Greek government and Greek financial system), plummeting stock prices at the and a renewed loss of access to private financing.

2015[]

After , the Troika granted a further four-month technical extension of its bailout programme; expecting that the payment terms would be renegotiated before the end of April, allowing the review and last financial transfer could be completed before the end of June.

Facing sovereign default, the government made new proposals in the first and second half of June. Both were rejected, raising the prospect of recessionary to avoid a – and exit from the Eurozone.

The government unilaterally broke off negotiations on 26 June. announced that a would be held on 5 July to approve or reject the Troika's 25 June proposal. The closed on 27 June.

The government campaigned for rejection of the proposal, while four opposition parties (, , and ) objected that the proposed referendum was unconstitutional. They petitioned for the or to reject the referendum proposal. Meanwhile, the Eurogroup announced that the existing second bailout agreement would technically expire on 30 June, 5 days before the referendum.

The Eurogroup clarified on 27 June that only if an agreement was reached prior to 30 June could the bailout be extended until the referendum on 5 July. The Eurogroup wanted the government to take some responsibility for the subsequent program, presuming that the referendum resulted in approval. The Eurogroup had signaled willingness to uphold their "November 2012 debt relief promise", presuming a final agreement. This promise was that if Greece completed the program, but its debt-to-GDP ratio subsequently was forecast to be over 124% in 2020 or 110% in 2022 for any reason, then the Eurozone would provide debt-relief sufficient to ensure that these two targets would still be met.

On 28 June the referendum was approved by the Greek parliament with no interim bailout agreement. The decided to maintain its Emergency Liquidity Assistance to Greek banks. Many Greeks continued to withdraw cash from their accounts fearing that capital controls would soon be invoked.

On 5 July a large majority to reject the bailout terms (a 61% to 39% decision with 62.5% voter turnout). This caused stock indexes worldwide to tumble, fearing Greece's potential exit from the Eurozone ("Grexit"). Following the vote, Greece's finance minister stepped down on 6 July and was replaced by .

On 13 July, after 17 hours of negotiations, Eurozone leaders reached a provisional agreement on a third bailout programme, substantially the same as their June proposal. Many financial analysts, including the largest private holder of Greek debt, private equity firm manager, , found issue with its findings, citing it as a distortion of net debt position.

2017[]

On February 20, 2017, the Greek finance ministry reported that the government's debt load is now €226.36 billion after increasing by €2.65 billion in the previous quarter.

Bailout programmes[]Main article: First Economic Adjustment Programme (May 2010 – June 2011)[]Main article: This article appears to contradict the article . Please see discussion on the linked . (December 2014) ()

On 1 May 2010, the Greek government announced a series of austerity measures The next day the Eurozone countries and the IMF agreed to a three-year €110 billion loan, paying 5.5% interest, conditional on the implementation of austerity measures. Credit rating agencies immediately downgraded Greek governmental bonds to an even lower junk status.

The was met with anger by the Greek public, leading to , riots and social unrest. On 5 May 2010, a national strike was held in opposition. Nevertheless, the austerity package was approved on 29 June 2011, with 155 out of 300 members of parliament voting in favour.

100,000 people protest against the austerity measures in front of parliament building in Athens (29 May 2011).Former Prime Minister and former European Commission President after their meeting in Brussels on 20 June 2011.Second Economic Adjustment Programme (July 2011 – )[]Main article:

At a 21 July 2011 summit in Brussels, Euro area leaders agreed to extend Greek (as well as Irish and Portuguese) loan repayment periods from 7 years to a minimum of 15 years and to cut interest rates to 3.5%. They also approved an additional €109 billion support package, with exact content to be finalized at a later summit. On 27 October 2011, Eurozone leaders and the IMF settled an agreement with banks whereby they accepted a 50% write-off of (part of) Greek debt.

Greece brought down its primary deficit from €25bn (11% of GDP) in 2009 to €5bn (2.4% of GDP) in 2011. However, the Greek recession worsened. Overall 2011 Greek GDP experienced a 7.1% decline. The unemployment rate grew from 7.5% in September 2008 to an unprecedented 19.9% in November 2011.

Bank recapitalization[]

The Hellenic Financial Stability Fund (HFSF) completed a €48.2bn bank recapitalization in June 2013, of which the first €24.4bn were injected into the four biggest Greek banks. Initially, this recapitalization was accounted for as a debt increase that elevated the debt-to-GDP ratio by 24.8 points by the end of 2012. In return for this, the government received shares in those banks, which it could later sell (per March 2012 was expected to generate €16bn of extra "privatization income" for the Greek government, to be realized during 2013–2020).ecb

HFSF offered three out of the four big Greek banks (, and ) to buy back all HFSF bank shares in semi-annual exercise periods up to December 2017, at some predefined strike prices., These banks acquired additional private investor capital contribution at minimum 10% of the conducted recapitalization. , failed to attract private investor participation and thus became almost entirely financed/owned by HFSF. During the first warrant period, the shareholders in Alpha bank bought back the first 2.4% of HFSF shares. Shareholders in Piraeus Bank bought back the first 0.07% of HFSF shares. National Bank (NBG) shareholders bought back the first 0.01% of the HFSF shares, because the market share price was cheaper than the strike price. Shares not sold by the end of December 2017 may be sold to alternative investors.

In May 2014, a second round of bank recapitalization worth €8.3bn was concluded, financed by private investors. All six commercial banks (Alpha, Eurobank, NBG, Piraeus, and Panellinia) participated. HFSF did not tap into their current €11.5bn reserve capital fund. in the second round was bale to attract private investors. This required HFSF to dilute their ownership from 95.2% to 34.7%.

According to HFSF's third quarter 2014 financial report, the fund expected to recover €27.3bn out of the initial €48.2bn. This amount included "A €0.6bn positive cash balance stemming from its previous selling of warrants (selling of recapitalization shares) and liquidation of assets, €2.8bn estimated to be recovered from liquidation of assets held by its 'bad asset bank', €10.9bn of EFSF bonds still held as capital reserve, and €13bn from its future sale of recapitalization shares in the four systemic banks." The last figure is affected by the highest amount of uncertainty, as it directly reflects the current market price of the remaining shares held in the four systemic banks (66.4% in Alpha, 35.4% in Eurobank, 57.2% in NBG, 66.9% in Piraeus), which for HFSF had a combined market value of €22.6bn by the end of 2013 – declining to €13bn on 10 December 2014.

Once HFSF liquidates its assets, the total amount of recovered capital will be returned to the Greek government to help to reduce its debt. In early December 2014, the allowed HFSF to repay the first €9.3bn out of its €11.3bn reserve to the Greek government. A few months later, the remaining HFSF reserves were likewise approved for repayment to ECB, resulting in redeeming €11.4bn in notes during the first quarter of 2015.

Creditors[]

Initially, European banks had the largest holdings of Greek debt. However, this shifted as the "troika" (ECB, IMF and a European government-sponsored fund) purchased Greek bonds. As of early 2015, the largest individual contributors to the fund were Germany, France and Italy with roughly €130bn total of the €323bn debt. The IMF was owed €32bn and the ECB €20bn. Foreign banks had little Greek debt.

European banks[]

Excluding Greek banks, European banks had €45.8bn exposure to Greece in June 2011. However, by early 2015 their holdings had declined to roughly €2.4bn.

European Investment Bank[]

In November 2015, the (EIB) lent Greece about 285 million euros. This extended the 2014 deal that EIB would lend 670 million euros. It was thought that the Greek government would invest the money on Greece's energy industries so as to ensure energy security and manage environmentally friendly projects. , the president of EIB, expected the investment to boost employment and have a positive impact on Greece's economy and environment.

Greek public opinion[]2008 riots in Athens

According to a poll in February 2012 by Public Issue and SKAI Channel, PASOK—which won the national elections of 2009 with 43.92% of the vote—had seen its approval rating decline to 8%, placing it fifth after centre-right New Democracy (31%), left-wing Democratic Left (18%), far-left Communist Party of Greece (KKE) (12.5%) and radical left Syriza (12%). The same poll suggested that Papandreou was the least popular political leader with a 9% approval rating, while 71% of Greeks did not trust him.

In a May 2011 poll, 62% of respondents felt that the IMF memorandum that Greece signed in 2010 was a bad decision that hurt the country, while 80% had no faith in the , , to handle the crisis. (Venizelos replaced Papakonstantinou on 17 June). 75% of those polled had a negative image of the IMF, while 65% felt it was hurting Greece's economy. 64% felt that sovereign default was likely. When asked about their fears for the near future, Greeks highlighted unemployment (97%), poverty (93%) and the closure of businesses (92%).

Polls showed that the vast majority of Greeks are not in favour of leaving the Eurozone. , independent British economist and consultant, wrote, "there has been so much propaganda over the years about the merits of the euro and the perils of being outside it that both expert and popular opinion can barely see straight. It is true that default and a euro exit could endanger Greece's continued membership of the EU. More importantly, though, there is a strong element of national pride. For Greece to leave the euro would seem like a national humiliation. Mind you, quite how agreeing to decades of misery under German subjugation allows Greeks to hold their heads high defeats me." Nonetheless, other 2012 polls showed that almost half (48%) of Greeks were in favour of default, in contrast with a minority (38%) who are not.

Economic and social effects[]See also: Protests in Athens on 25 May 2011Economic effects[]

Greek GDP's worst decline, −6.9%, came in 2011, a year in which seasonally adjusted industrial output ended 28.4% lower than in 2005. During that year, 111,000 Greek companies went bankrupt (27% higher than in 2010). As a result, the seasonally adjusted unemployment rate grew from 7.5% in September 2008 to a then record high of 23.1% in May 2012, while the youth unemployment rate time rose from 22.0% to 54.9%.

Key statistics are summarized below, with a detailed table at the bottom of the article. According to the CIA World Factbook and :

Greek fell from €242 billion in 2008 to €179 billion in 2014, a 26% decline. Greece was in recession for over five years, emerging in 2014 by some measures.GDP per capita fell from a peak of €22,500 in 2007 to €17,000 in 2014, a 24% decline.The public debt to GDP ratio in 2014 was 177% of GDP or €317 billion. This ratio was the world's third highest after Japan and Zimbabwe. Public debt peaked at €356 billion in 2011; it was reduced by a bailout program to €305 billion in 2012 and then rose slightly.The annual budget deficit (expenses over revenues) was 3.4% GDP in 2014, much improved versus the 15% of 2009.Tax revenues for 2014 were €86 billion (about 48% GDP), while expenditures were €89.5 billion (about 50% GDP).The unemployment rate rose from below 10% (2005–2009) to around 25% (2014–2015).An estimated 44% of Greeks lived below the poverty line in 2014.

Greece defaulted on a $1.7 billion IMF payment on June 29, 2015. The government had requested a two-year bailout from lenders for roughly $30 billion, its third in six years, but did not receive it.

The reported on 2 July 2015 that the "debt dynamics" of Greece were "unsustainable" due to its already high debt level and "...significant changes in policies since [2014]—not least, lower primary surpluses and a weak reform effort that will weigh on growth and privatization—[which] are leading to substantial new financing needs." The report stated that debt reduction (haircuts, in which creditors sustain losses through debt principal reduction) would be required if the package of reforms under consideration were weakened further.

Taxation[]This section needs expansion. You can help by . (May 2016)

As of 2016, five indirect taxes had been added to goods and services. At 23%, the value added tax is one of the Eurozone's highest, exceeding other EU countries on small and medium-sized enterprises. One researcher found that the poorest households faced tax increases of 337%.

The ensuing tax policies are accused for having the opposite effects than intended, namely reducing instead of increasing the revenues, as high taxation discourages transactions and encourages tax evasion, thus perpetuating the depression. Some firms relocated abroad to avoid the country's higher tax rates.

The fear of higher taxes increasing tax evasion seems to ring true. Greece not only has some of the highest taxes in Europe, it also has major problems in terms of tax collection. The VAT deficit due to tax evasion is estimated at 34%. Tax debts in Greece are now equal to 90% of annual tax revenue, which is the worst number in all industrialized nations. Much of this is due to the fact that Greece has a vast underground economy, which was estimated to be about the size of a quarter of the country's GDP before the crisis. The International Monetary Fund therefore argued that Greece's debt crisis could be almost completely resolved if the country's government found a way to solve the tax evasion problem.

Social effects[]

The social effects of the austerity measures on the Greek population were severe.

Employment and unemployment in Greece from 2004 to 2014

In February 2012, it was reported that 20,000 Greeks had been made homeless during the preceding year, and that 20 per cent of shops in the historic city centre of Athens were empty.

By 2015, the (OECD) reported that nearly twenty percent of Greeks lacked funds to meet daily food expenses. As the economy contracted and the declined, traditionally strong Greek came under increasing strain, attempting to cope with increasing unemployment and homeless relatives. Many unemployed Greeks cycled between friends and family members until they ran out of options and ended up in . These homeless had extensive work histories and were largely free of mental health and substance abuse concerns.

The Greek government was unable to commit the necessary resources to homelessness, due in part to austerity measures. A program was launched to provide a stipend to assist homeless to return to their homes, but many enrollees never received grants. Various attempts were made by local governments and non-governmental agencies to alleviate the problem. The non-profit street newspaper Shedia (: Σχεδία),Raft is sold by street vendors in Athens attracted many homeless to sell the paper. Athens opened its own shelters, the first of which was called the Hotel Ionis. In 2015, the Venetis bakery chain in Athens gave away ten thousand loaves of bread a day, one-third of its production. In some of the poorest neighborhoods, according to the chain's general manager, "In the third round of austerity measures, which is beginning now, it is certain that in Greece there will be no consumers — there will be only beggars."

Other effects[]

has ceased operation due conducting organization being liquidated.

Paid players will receive their salary with new tax rates.

Responses[]Grexit[]

suggested that the Greek economy could recover from the recession by exiting the Eurozone ("Grexit") and returning to its national currency, the drachma. That would restore Greece's control over its monetary policy, allowing it to navigate the trade-offs between inflation and growth on a national basis, rather than the entire Eurozone. Iceland made a dramatic recovery after it filed for bankruptcy in 2008, in part by devaluing the (ISK). In 2013, it enjoyed an economic growth rate of some 3.3 percent. Canada was able to improve its budget position in the 1990s by devaluing its currency.

However, the consequences of "Grexit" could be global and severe, including:

Membership in the Eurozone would no longer be perceived as irrevocable. Other countries might be tempted to exit or demand additional debt relief. These countries might see interest rates rise on their bonds, complicating debt service.Geopolitical shifts, such as closer relations between Greece and Russia, as the crisis soured relations with Europe.Significant financial losses for Eurozone countries and the IMF, which are owed the majority of Greece's roughly $300 billion national debt.Adverse impact on the IMF and the credibility of its austerity strategy.Loss of Greek access to global capital markets and the collapse of its banking system.Digital currency cards[]

Greece and other states practice in which the amount of bank deposits far exceeds the amount of currency in circulation. cards provide a way to make payments without the need to print/circulate more currency.

Bailout[]

Greece could accept additional bailout funds and debt relief (i.e., bondholder haircuts or principal reductions) in exchange for greater austerity. However, austerity has damaged the economy, deflating wages, destroying jobs and reducing tax receipts, thus making it even harder to pay its debts.[] If further austerity were accompanied by enough reduction in the debt balance owed, the cost might be justifiable.

European debt conference[]

Economist said in July 2015: "We need a conference on all of Europe's debts, just like after World War II. A restructuring of all debt, not just in Greece but in several European countries, is inevitable." This reflected the difficulties that Spain, Portugal, Italy and Ireland had faced (along with Greece) before ECB-head signaled a pivot to looser monetary policy. Piketty noted that Germany received significant debt relief after World War II. He warned that: "If we start kicking states out, then....Financial markets will immediately turn on the next country."

Germany's role in Greece[]The of this section is . Relevant discussion may be found on the . Please do not remove this message until . (May 2012) ()This section may lend to certain ideas, incidents, or controversies. Please help to create a more balanced presentation. Discuss and this issue before removing this message. (July 2012)

So what, in brief, is happening? The answers are: creeping onset of deflation; mass joblessness; thwarted internal rebalancing and over-reliance on external demand. Yet all this is regarded as acceptable, desirable, even moral—indeed, a success. Why? The explanation is myths: the crisis was due to fiscal malfeasance instead of to irresponsible cross-border credit flows; fiscal policy has no role in managing demand; central bank purchases of government bonds are a step towards hyperinflation; and competitiveness determines external surpluses, not the balance between supply and insufficient demand.

"Germany is a weight on the world"
, 5 November 2013

Germany has played a major role in discussion concerning Greece's debt crisis, though that is hardly surprising given that it was German banks who held the largest amount of Hellenic debt. Critics have accused the German government of hypocrisy; of pursuing its own national interests via an unwillingness to adjust fiscal policy in a way that would help resolve the eurozone crisis (and citing benefits it enjoyed through the crisis including falling borrowing rates, investment influx, and exports boost thanks to Euro's depreciation); of using the ECB to serve their country's national interests; and have criticised the nature of the austerity and debt-relief programme Greece has followed as part of the conditions attached to its bailouts.

Charges of hypocrisy[]

Hypocrisy has been alleged on multiple bases. "Germany is coming across like a know-it-all in the debate over aid for Greece", commented Der Spiegel, while its own government did not achieve a budget surplus during the era of 1970 to 2011, although a budget surplus indeed was achieved by Germany in all three subsequent years (2012–2014) – with a spokesman for the governing commenting that "Germany is leading by example in the eurozone – only spending money in its coffers". A editorial, which also concluded that "Europe's taxpayers have provided as much financial support to Germany as they have to Greece", described the German role and posture in the Greek crisis thus:

In the millions of words written about Europe's debt crisis, Germany is typically cast as the responsible adult and Greece as the profligate child. Prudent Germany, the narrative goes, is loath to bail out freeloading Greece, which borrowed more than it could afford and now must suffer the consequences. [...] By December 2009, according to the Bank for International Settlements, German banks had amassed claims of $704 billion on Greece, Ireland, Italy, Portugal and Spain, much more than the German banks' aggregate capital. In other words, they lent more than they could afford. [... I]rresponsible borrowers can't exist without irresponsible lenders. Germany's banks were Greece's enablers.

German economic historian Albrecht Ritschl describes his country as "king when it comes to debt. Calculated based on the amount of losses compared to economic performance, Germany was the biggest debt transgressor of the 20th century." Despite calling for the Greeks to adhere to fiscal responsibility, and although Germany's tax revenues are at a record high, with the interest it has to pay on new debt at close to zero, Germany still missed its own cost-cutting targets in 2011 and is also falling behind on its goals for 2012.

Allegations of hypocrisy could be made towards both sides: Germany complains of Greek corruption, yet the arms sales meant that the trade with Greece became synonymous with high-level bribery and corruption; former defence minister Akis Tsochadzopoulos was jailed in April 2012 ahead of his trial on charges of accepting an €8m bribe from Germany company Ferrostaal.

Pursuit of national self-interest[]

"The counterpart to Germany living within its means is that others are living beyond their means", according to Philip Whyte, senior research fellow at the Centre for European Reform. "So if Germany is worried about the fact that other countries are sinking further into debt, it should be worried about the size of its trade surpluses, but it isn't."

OECD projections of relative export prices—a measure of competitiveness—showed Germany beating all euro zone members except for crisis-hit Spain and Ireland for 2012, with the lead only widening in subsequent years. A study by the in 2010 noted that "Germany, now poised to derive the greatest gains from the euro's crisis-triggered decline, should boost its domestic demand" to help the periphery recover. In March 2012, Bernhard Speyer of reiterated: "If the eurozone is to adjust, southern countries must be able to run trade surpluses, and that means somebody else must run deficits. One way to do that is to allow higher inflation in Germany but I don't see any willingness in the German government to tolerate that, or to accept a deficit." According to a research paper by , "Solving the periphery economic imbalances does not only rest on the periphery countries' shoulders even if these countries have been asked to bear most of the burden. Part of the effort to re-balance Europe also has to been borne by Germany via its current account." At the end of May 2012, the European Commission warned that an "orderly unwinding of intra-euro area macroeconomic imbalances is crucial for sustainable growth and stability in the euro area," and suggested Germany should "contribute to rebalancing by removing unnecessary regulatory and other constraints on domestic demand". In July 2012, the IMF added its call for higher wages and prices in Germany, and for reform of parts of the country's economy to encourage more spending by its consumers.

Paul Krugman estimates that Spain and other peripherals need to reduce their price levels relative to Germany by around 20 percent to become competitive again:

If Germany had 4 percent inflation, they could do that over 5 years with stable prices in the periphery—which would imply an overall eurozone inflation rate of something like 3 percent. But if Germany is going to have only 1 percent inflation, we're talking about massive deflation in the periphery, which is both hard (probably impossible) as a macroeconomic proposition, and would greatly magnify the debt burden. This is a recipe for failure, and collapse.

The US has also repeatedly asked Germany to loosen fiscal policy at G7 meetings, but the Germans have repeatedly refused.

Even with such policies, Greece and other countries would face years of hard times, but at least there would be some hope of recovery. EU employment chief Laszlo Andor called for a radical change in EU crisis strategy and criticised what he described as the German practice of "wage dumping" within the eurozone to gain larger export surpluses.

With regard to structural reforms required from countries at the periphery, Simon Evenett (9 June 2013). . . Retrieved 16 June 2013. stated in 2013: "Many promoters of structural reform are honest enough to acknowledge that it generates short-term pain. (...) If you've been in a job where it is hard to be fired, labour market reform introduces insecurity, and you might be tempted to save more now there's a greater prospect of unemployment. Economy-wide labour reform might induce consumer spending cuts, adding another drag on a weakened economy."</ref> Paul Krugman opposed structural reforms in accordance with his view of the task of improving the macroeconomic situation being "the responsibility of Germany and the ECB"."

Claims that Germany had, by mid-2012, given Greece the equivalent of 29 times the aid given to West Germany under the Marshall Plan after World War II have been contested, with opponents claiming that aid was just a small part of Marshall Plan assistance to Germany and conflating the writing off of a majority of Germany's debt with the Marshall Plan.

The version of adjustment offered by Germany and its allies is that austerity will lead to an internal devaluation, i.e. deflation, which would enable Greece gradually to regain competitiveness. This view too has been contested. A February 2013 research note by the Economics Research team at Goldman Sachs claims that the years of recession being endured by Greece "exacerbate the fiscal difficulties as the denominator of the debt-to-GDP ratio diminishes".

Strictly in terms of reducing wages relative to Germany, Greece had been making progress: private-sector wages fell 5.4% in the third quarter of 2011 from a year earlier and 12% since their peak in the first quarter of 2010. The second economic adjustment programme for Greece called for a further labour cost reduction in the private sector of 15% during 2012–2014.

In contrast Germany's unemployment continued its downward trend to record lows in March 2012, and yields on its government bonds fell to repeat record lows in the first half of 2012 (though real interest rates are actually negative).

All of this has resulted in increased anti-German sentiment within peripheral countries like Greece and Spain.

When Horst Reichenbach arrived in Athens towards the end of 2011 to head a new European Union task force, the Greek media instantly dubbed him "Third Reichenbach". Almost four million German tourists—more than any other EU country—visit Greece annually, but they comprised most of the 50,000 cancelled bookings in the ten days after the 6 May 2012 Greek elections, a figure The Observer called "extraordinary". The estimates that German visits for 2012 will decrease by about 25%. Such is the ill-feeling, historic claims on Germany from WWII have been reopened, including "a huge, never-repaid loan the nation was forced to make under Nazi occupation from 1941 to 1945."

Economic statistics[]