Tag Archive | "Greece"

Migrants seen as Economic Detriment to Greece and Benefit to Germany

By the end of July 2015, more than 124,000 refugees and migrants had arrived in Greece; an astonishing 750% increase in the amount of refugees and migrants from the same time the previous year. The vast majority of these refugees are those feeing conflict and human rights violations in Syria, Afghanistan, and Iraq in wake of the humanitarian crisis.

Refugees arriving in Lesbos, Greece. Photo credit: Laxar Simeonov (click for source)

For these refugees, the Greek financial crisis has been both a blessing and a curse. For many, travel into the Greek islands is attractive because of the country’s reputation for leniency in immigration laws and lack of resources to adequately control its borders and the flow of immigrants. However, once they’re in, many face the bleak reality of the struggling Greek economy. Though some view Greece as simply the entry point into Western Europe with plans to move north to more prosperous countries such as Germany, many flee to Greece with very little possessions and money and can’t afford to travel any further. It’s at this point that the realities of the Greek economy and the scope of the refugee crisis come into view: Greece simply cannot support and process the major influx of refugees while at the same time trying to recover its dismal economic state. Frustrations in the wake of such considerations have reached a tipping point recently culminating in riots on the island of Lesbos over seemingly inefficient process for intake of refugees and inability of the government to provide basic necessities to those arriving on the islands.

Although Greece is struggling to assist refugees, the generous response from the Greek society, in a very difficult time, should be and appears to be acknowledged with action and support from the European Union. On September 22, the EU Interior Ministers voted in favor of a quota system to address the crisis and help to relocate asylum-seeks throughout Europe. Though the plan has been approved by the EU Interior Ministers, it still must be considered by the EU Presidents and Prime Ministers, and the EU remains divided on how best to address the refugee crisis, with some member states calling the quota system “unreasonable” and a “waste of time.” However, scholars on the other side have taken the position that the massive influx of refugees seeking employment and ready to build a new life presents a valuable opportunity for countries like Germany, with an aging workforce and declining population, and have gone as far as to forecast that a sharp increase in growth will result for those willing to accept new migrants and asylum-seekers stating, “an influx of 1 million people over the next three years would raise the country’s GDP by 0.6% by 2020.” Germany’s ability to integrate a substantial number of asylum-seeks seems to have been taken into consideration, with Germany being asked to take by far the highest number of immigrants under the proposed plan.

Demi Arenas is a 3L at the University of Denver Sturm College of Law and a Staff Editor on the Denver Journal or International Law and Policy.

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News Post: The argument for pricing terms in sovereign debt contracts

Increase in Greek Debt

The ongoing debt crisis in Greece highlights a conundrum: Greek-law controlled bonds can be unilaterally altered by changing Greek law, while the Greek government cannot unilaterally change the laws governing a bond with a foreign choice-of-law clause. Boilerplate terms in contracts are typically ignored and not given a monetary value. However, recent commentary suggests that, especially in the issuance of sovereign bonds, choice-of-law clauses should be given monetary value. In the case of sovereign debt, bonds subject to choice-of-law clauses other than Greek law offer greater protections against default by the Greek government.

Estimates suggest that over 90% of outstanding Greek sovereign debt was issued under contracts governed by local Greek law. This gives Greece an advantage in that it may restructure the vast majority of its debt by changing Greek law, and not fear being kept out of international capital markets. By way of contrast, when Brazilian debt markets were in turmoil in 2002, almost all of Brazil’s sovereign debt was subject to U.S. or U.K. law, and Brazil did not have the option to rewrite the laws governing the issuance and collection of sovereign bonds.

One possible rationale for allowing Greece to restructure its Greek-law controlled bonds is that international markets view a sovereign utilizing flexibility to change its own local law and reduce the amounts it owes to specific creditors, more favorably than an outright default of payment terms to all creditors. This is possibly a result of the ex ante bargain struck between Greece and different types of creditors. The example of Greece’s restructuring debt by changing local laws should serve as a lesson to all creditors that the boilerplate provisions in a contract have value, and should be considered more carefully in the future.

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Protesters in Greece

The Epic Proportions of the Greek Debt Crisis

As Odysseus was returning home from the Trojan War, he came to a narrow channel that enclosed two deadly monsters: Scylla and Charybdis. On one side – Scylla – a six-headed demon that devoured any sailors that came too close. On the other side – Charybdis – a kraken that would swallow massive amounts of water to create huge whirlpools that capsized any ship in the area. While these whirlpools would only come three times a day, a sailor had no way of predicting when one was about to begin. Avoiding Charybdis meant passing through Scylla’s striking zone, and vice versa.

Odysseus had to make a difficult decision. While he originally contemplated charting a course down the middle of the channel, in the end he decided it was better to pass within the reach of Scylla. With Scylla he would only lose six sailors, one to each of her six terrible heads, rather than risk the loss of his entire ship in the whirlpool.

Today, the European Union faces a similar situation as it contemplates the Greek debt crisis. Scylla is reincarnated as a structured or “orderly” default program. A structured default would result in large losses for Greek debt-holders, but offers more predictability. Charybdis takes the form of continuing credit injections. While bailout money may allow Greece to escape the whirlpool of bankrupcy, many feel that there is a strong chance the country would default anyway. A default in this situation could lead to a panicked run on the banks and could potentially sink the entire European Union as the crisis spread to Italy and even Spain.

Protesters in Greece

Protesters in Greece

Which is the lesser of two evils?

Like the story of Odysseus’ trip home to Ithaca, the story of the Greek debt crisis has been a protracted one. Greece first requested a €45 billion bailout from the EU/IMF in April 2010, amid fears that it was carrying an excessive debt load. In May 2010, the EU/IMF agreed to a larger, €110 billion euro loan package to be distributed over three years. Of course, as a condition precedent to receiving this loan, Greece had to undertake rigorous fiscal adjustment (a.k.a. austerity measures). These austerity measures, which included public-sector pay cuts, pension reductions, and increases in taxes, lead to mass protests by the Greek population. Despite these austerity measures, however, Greece failed to bring its debt under control. In fact, 2010 estimates indicated that Greece’s debt had increased to €328 billion which amounted to 160% of its GDP.

In June 2011, Standard and Poor’s downgraded Greece to a CCC credit rating, suggesting that the market felt that the bailout was a failure. As the situation continued to simmer, many analysts began to argue that an uncontrolled full default was looming. While it is difficult to predict what would happen in the case of a full Greek default, it would likely prove disastrous for the Eurozone. Banks in countries with weak finances could face a run by depositors, exposing Italy, and possibly even Spain, to the crisis. The Italian and Spanish economies are far bigger than those of Greece, and the European Union would struggle to bail them out if that became necessary.

Thus, world leaders are moving towards rescue proposals that include a structured partial default for Greece. If these proposals are passed, the country will simply be allowed to pay back less than it actually borrowed. Institutions that lent money to Greece will have to write off some of the money they are owed.

Like Odysseus, the European Union seems to be choosing to make a controlled sacrifice to avoid potential disaster. While structured default includes guaranteed losses, those losses are easier to contain. Let’s hope that the European banks are able to come out relatively intact as they pass through Scylla’s many-headed attack.

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University of Denver Sturm College of Law

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