Greeces Debt Crisis Overview, Policy Responses, and.pdfVIP

Greece’s Debt Crisis: Overview, Policy Responses, and Implications Rebecca M. Nelson, Coordinator Analyst in International Trade and Finance Paul Belkin Analyst in European Affairs Derek E. Mix Analyst in European Affairs August 18, 2011 Congressional Research Service 7-5700 R41167 CRS Report for Congress Prepared for Members and Committees of Congress Greece’s Debt Crisis: Overview, Policy Responses, and Implications Summary The Eurozone is facing a serious sovereign debt crisis. Several Eurozone member countries have high, potentially unsustainable levels of public debt. Three—Greece, Ireland, and Portugal—have borrowed money from other European countries and the International Monetary Fund (IMF) in order to avoid default. With the largest public debt and one of the largest budget deficits in the Eurozone, Greece is at the center of the crisis. The crisis is a continuing interest to Congress due to the strong economic and political ties between the United States and Europe. Build-Up of Greece’s Debt Crisis In the 2000s, Greece had abundant access to cheap capital, fueled by flush capital markets and increased investor confidence after adopting the euro in 2001. Capital inflows were not used to increase the competitiveness of the economy, however, and European Union (EU) rules designed to limit the accumulation of public debt failed to do so. The global financial crisis of 2008-2009 strained public finances, and subsequent revelations about falsified statistical data drove up Greece’s borrowing costs. By early 2010, Greece risked defaulting on its public debt. Policy Responses with Limited Su