Managing Risk in the Financial System
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Managing Risk in the Financial System

Edited by John Raymond LaBrosse, Rodrigo Olivares-Caminal and Dalvinder Singh

Managing Risk in the Financial System makes important and timely contributions to our knowledge and understanding of banking law, financial institution restructuring and related considerations, through the production of an innovative, international and interdisciplinary set of contributions which link together the law and policy issues surrounding systemic risk and crisis management.
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Chapter 9: The Greek Tragedy: Is There a Deus ex Machina?

Loannis Kokkoris, Rodrigo Olivares-Caminal and Kiriakos Papadaki

Extract

9. The Greek tragedy: is there a Deus ex Machina?1 Ioannis Kokkoris, Rodrigo Olivares-Caminal and Kiriakos Papadakis2 9.1. INTRODUCTION The purpose of this chapter is twofold: firstly, to discuss the difficulties that being a member of the European Monetary Union (EMU) entail, with particular focus on Greece and on the implications of an internal devaluation. Secondly, how debt re-profiling can help to support the mechanisms of fiscal rehabilitation and external financing at the sovereign and corporate level. Among other issues, we clarify the situation confronting the Greek authorities and provide a description of the different mechanisms to restructure/re-profile sovereign debt. 9.2. THE GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON SOVEREIGN DEBT The global financial crisis of 2007 has resulted in an overall increase of sovereign debt levels. Fiscal balances (as a ratio of gross domestic product (GDP)) have deteriorated. This deterioration is mainly because of falling revenues resulting from decreased real and financial activity. According to IMF’s data3 in 2010 advanced countries will average a budget deficit of (−8.3 per cent) while emerging economies one of (−3.3 per cent). In advanced economies public debt to GDP ratio will reach in 2010 the level of 97 per cent (rising from below 75 per cent in 2006) while in emerging economies will be 37 per cent (almost equal to 2006 level). This is the result of a shift in risk allocation in advanced economies. In other words, the turmoil of the markets has calmed down by pouring government financial aid which...

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