Timeline of Greek Debt Crisis and Implications of Greek Bailout Deal

Timeline of Greek Debt Crisis and Implications of Greek Bailout Deal

Question: Following 17 hours of summit talks, Eurozone leaders have announced the third bailout deal to rescue Greece without invoking Grexit. Give a timeline of the Greek debt crisis and discuss the implications of the Greek bailout deal.

Timeline

- 26 June 2015: Greece stops talks with creditors and calls referendum on bailout terms

- 28 June 2015: ECB restricts emergency funding to Greece; the nation imposes capital controls to force banks to stay shut

- 30 June 2015: Expiry of Eurozone bailout and Greece’s failure to make €1.6bn payment to IMF

- 5 July 2015: Overwhelming “No” vote in referendum rejecting creditors conditions

- 9 July 2015: Greek PM presents new proposals to creditors comprising measures rejected in the referendum

- 13 July 2015: Third bailout deal is formed

Implications of the Deal

The Greek parliament must follow laws to reform key parts of the economy which include the following:

- Streamlining of the pension system

- Boosting tax revenue especially from VAT

- Liberalisation of the labour market

- Privatisation of the electricity network

- Extension of shop opening hours

- Eurozone agrees to start negotiations on loan package for Greece worth USD 91billion to 96 billion or around €82bn-86bn

- Loan will come from the European Stability Mechanism namely the eurozone bailout fund

- IMF will be asked to make contribution from March, 2016

- A new trust fund will be established managed by Greece with USD 50 billion of Greek assets

- This is a mechanism for payment of part of the total ESM loan

- Half of the Euro 50 billion will go towards fund recapitalisation of banks in Greece

- The other half will be oriented towards reducing Greek debt through privatisation of assets and investment in Greece

- Greece will also attain short term bridge financing as part of the bailout deal, separate from the ESM

- Amount is estimated at Euro 7 billion within a week and another Euro 5 billion by mid-August

- From the total ESM loan, around Euro 10 billion has been set aside for recapitalising Greek Banks

- ECB, Eurozone FMs and IMF will monitor Greek compliance with bailout conditions

- Any negotiations on the bailout deal will only commence following approval of the plan by the German, Greek and Finnish parliaments

- Debt will not be written off- it will be rescheduled

- EC will mobilise Euro 35 billion outside the ESM loan for helping Greece with employment generation and growth

- Grexit or Greek exit from the EU has been avoided

- Deal involves strict austerity programmes involving pension, market and privatisation reforms through parliament as soon as possible.

- Deal could pave the way for ECB to extend emergency liquidity assistance to banks in Greece as well

About ESM

- ESM is the only permanent bailout fund of the Eurozone which is financed by 19 member states

- It was launched in the month of October 2012 and the total lending capacity is Euro 500 billion

- ESM lends to countries which meet strict economic conditions

- ESM was used to rescue Spain and Cyprus as well

- Germany is the largest contributor of ESM

- ESM bailout takes around 3 weeks to organise

Facts and Stats

- Two previous bailouts totalling 240 billion euro have been received by Greece

- Greece has a debt mountain of Euro 320 billion

- There has been a 25% fall in Greek GDP since 2010

- The Greek unemployment rate is currently 26%

- Its debt to GDP ratio is 177%