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1 [1] (June 29, 2015)

handle is hein.crs/crsmthaafhz0001 and id is 1 raw text is: CRS Insights Economic Crisis in Greece Rebecca M. Nelson, Specialist in International Trade and Finance (rnelsonnahcrs.loc gov, 7-6819) June 29, 2015 (L,.9 Background Questions about whether Greece will stay in the Eurozone have resurfaced, as the government's stalemate with the International Monetary Fund (IMF) and Eurozone creditors has reached a critical point. Greece's economic crisis was triggered in 2009, when it was revealed that successive Greek governments had been misreporting data on its budget deficit. Questions about the sustainability of Greek public finances eroded investor confidence and shut the country out of financial markets, when it was still struggling to recover from the global financial crisis. The crisis in Greece spilled over to other Eurozone countries, including Ireland, Portugal, and Cyprus. Concerned about the systemic risks Greece could pose to the rest of the Eurozone and the broader international economy, other Eurozone governments and the IMF extended two financial assistance packages to the Greek government (in 2010 and 2012) totaling €240 billion (about $270 billion). In 2012, Greece also rimcmdita _dl2I, with investors taking substantial losses (75% on a net present value basis). The European Central Bank (ECB) initiated a series Of policy measures, including providing liquidity support to Eurozone banks and purchasing or pledging to purchase government bonds in secondary markets, which were broadly credited with stabilizing market panic and limiting contagion. More than five years after the onset, Greece's economy remains in crisis. Since 2007, its economy has contracted by nearly 25%, a contraction some analysts believe is re in r ei em thathe Great D r esim in the United States. Unemployment has tripled to nearly 25%, and public debt has risen from 103% of GDP to 173% of GDP. Additionally, the assistance program has been in derailed by a stalemate between the Greek government and its creditors; no money has been disbursed by the Europeans or the IMF in nearly a year. Meanwhile, the economic situation in other Eurozone crisis countries, including Ireland, Portugal, and Cyprus, has stabilized. Negotiations between Greece and its Creditors The Greek government and its European and IMF creditors have been in tense negotiations for months over the final disbursement of funds from the second financial assistance package. Key issues in the negotiations include: (1) the policy reforms required of the Greek government tied to the disbursement, particularly relating to taxes, pensions, and fiscal targets; and (2) potential debt relief from European creditors that could help put Greece's debt on a sustainable path. Greek Prime Minister Alexis Tsipras was elected in January 2015 pledging to reverse austerity measures and demand debt relief from European creditors. Meanwhile, European creditors, led by Germany, have expressed frustration with the Greek government's repeated delays in implementing reforms. Although resistant to writing down the value of the Greek debt, these creditors might be open to other options, such as extending maturities, that could lower the debt burden in the short-term. The two sides have exchanged a number of proposals, but it is not clear whether a final agreement will be reached. If a deal is reached, it would unlock the final disbursement under Greece's second program, providing the government with €7.2 billion (about $8.1 billion). The government is perilously close to running out of cash and resorting to exceptional tactics to meet its obligations. However, even if Greece does reach a deal with its creditors, it is not seen as a long-term solution. Many analysts believe that the funds would only meet Greece's financing needs through the summer. Some believe that Greece needs a third financial assistance package, but it is not clear if there is political will in the Eurozone for a third Greek program. Recent Developments

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