May 15, 2012

Political parties in Greece were unable to come to terms today to form a coalition government, forcing yet another round of parliamentary elections. President Karolos Papoulias is scheduled to meet with all political leaders to establish an interim government until the elections, which are expected to take place in mid-June.

Greece is in a fifth year of recession, and its economy contracted by fully 6.2 percent in the first quarter of this year. With the rate of unemployment at a record 22 percent, a majority of Greeks voted on May 6 for either far left wing or right wing parties that oppose austerity measures demanded by the European Union (EU) and International Monetary Fund. The measures were part of an agreement granting Greece two bailouts to avoid default on its national debt. European leaders, specifically German Chancellor Angela Merkel, have stated that they will cut off funding for Greece if it rejects that bailout agreement.

Seventeen of the 27 member nations of the European Union (EU) are in the eurozone. They are Austria, Belgium, the Republic of Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. (World Book map)

Economists note that without EU funding, Greece would effectively fall into bankruptcy, making it all but certain that it would exit the European single currency. Seventeen countries, known as the eurozone, adopted the single currency. The prospect of a debt-crippled Greece forced out of the European single currency depressed prices of stocks on European markets as well as the value of the euro against the U.S. dollar.

Market analysts fear that a possible departure from the euro will set off a new round of financial instability for Europe and the outside world. The economies of at least a dozen European countries are already in recession.

Additional World Book articles:

• Crisis in the Eurozone (a special report)
• Banks 2011 (a Back in Time article)
• Economics 2011 (a Back in Time article)

Feb. 21, 2012

Leaders of European Union (EU) nations, meeting in Brussels, have agreed to a 130-billion-euro ($170-billion) bailout of Greece and a write-down of its national debt by at least 107 billion euros ($145.5 billion). The deal is intended to save Greece from defaulting (failing to pay debts when due). Greece’s national debt currently stands at 160 percent of gross domestic product (GDP). GDP is the market value of all goods and services produced in a country in a given year.

The debt write-down involves private bondholders–primarily banks and other financial institutions–taking losses of as much as 70 percent. They will exchange their current holdings for new Greek bonds of a lower value: 30-year bonds with an interest rate of about 3.75 percent. The incentive behind the bondholders’ acceptance of the write-down is simple–30 percent of value is better than nothing at all.

Coins and bills of the euro, the common European currency, went into circulation on Jan. 1, 2002. The euro has replaced the individual currencies of 17 member nations of the European Union. European Central Bank

In exchange for the loan and write-down, Greece faces yet more austerity measures (strict rationing to conserve resources): steep public-sector wage cuts; the layoff of some 150,000 public employees by 2015; a 20-percent decrease in the minimum wage; and a slashed defense budget. The measures are intended to reduce Greece’s debt to 120.5 percent of GDP by 2020.

In what is seen as a humiliating and unprecedented intrusion into Greece’s sovereignty, permanent monitors from the EU, the European Central Bank, and the International Monetary Fund are to take up residence in Athens to ensure Greek compliance. Greece must also amend its constitution to give priority to repaying the bailout loan over the funding of all government services.

Additional World Book articles

• Crisis in the Eurozone (a special report)
• Europe 2010 (Back in Time article)
• Greece 2010 (Back in Time article)

The combined gross domestic products (GDP) of the world’s developed economies (countries with highly developed economies) will expand “at an anemic [slow] pace of 1.5 percent in 2011,” the International Monetary Fund (IMF) announced, pointing to “financial turbulence in the eurozone” and continuing political and economic problems in the United States. (The eurozone is the 17 member countries of the European Union that have adopted the euro as their single currency.) The 187-member IMF conducts economic analysis and lends money to countries in financial distress.

The IMF lowered its outlook for the 17 eurozone countries to 1.6 percent growth in 2011 and 1.1 percent 2012, down from June projections of 2 percent and 1.7 percent, respectively. The IMF expects U.S. economic growth to shrink to 1.5 percent this year and 1.8 percent next, down from June forecasts of 2.5 percent in 2011 and 2.7 percent in 2012. It projects that global growth will shrink to 4 percent in 2012, from 5 percent in 2010. Stronger growth in Brazil, China, India, and other developing countries should offset weaker output in Europe and the United States, suggested the IMF’s chief economist, Olivier Blanchard.

Additional World Book articles:

• Economics (The world economy)
• Europe 2010 (Back in Time article)
• Crisis in the Eurozone (special report)
• Economic Crisis: The Government Jumps In (special report)
• Economic Crises: Then and Now (a special report)