REV: SEPTEMBER 16, 2011
DANTE ROSCINI JONATHAN SCHLEFER KONSTANTINOS DIMITRIOU
The Greek Crisis: Trag k gedy or Oppor rtunity? ?
By November 2010, Georg Papaconst y ge tantinou, the Greek fina e ance minister was pract r, tically oblivi ious to the daily chants of protesters in Constituti d o ion Square outside his of ffice. He pon ndered wheth the polici his gover her ies rnment had adopted over the past yea would allo it to avoi the a r ar ow id restru ucturing of it public deb ts bt—in effect, partial defau ult—that man saw as li ny ikely, even if only f severa years ahead al d. Du uring his Oc ctober 2009 electoral cam e mpaign, Geor rge Papandre eou, leader o the Panhe of ellenic Social list Movemen (PASOK), had promised to stren nt , ngthen social protection. But the pre evious gover rnment’s estim mates of the 2009 deficit— —rising from 3.7% of GDP to 6.7% of G P GDP—had proven wildly optimistic.1 Almost as so as PASO took office and Papaco y oon OK e, onstantinou w named finance was minis ster, he had co oncluded that the deficit would be twice as high: 12.7 of GDP.2 A by Nove t w e 7% ember And 2010, the deficit for 2009 was de r etermined to have reached 15.4% of GD 3 h DP. As the deficit numbers wors s n sened, nervou financial m us markets had k kept demand ding higher in nterest rates on governm ment debt. At one point, interest rates reached alm i s most 19%. In the end, on an n nly emerg gency loan from the Europ pean Union (EU) and the International Monetary F ( l Fund (IMF) in May n 2010 had allowed Greece to avoid default In return t a t. the governme had enac ent cted a harsh fiscal retren nchment, red ducing salarie and pensi es ions for pub blic employee raising th retirement age, es, he t cuttin services, and increasing taxes. Now Papandreou was calling for a drast decrease i the ng a w u g tic in numb of public employees.4 ber e Ini itial protests had been vio olent but bac ckfired when rioters set fi to a bank in central At ire thens, killing three peopl and shocking the publi Subsequen protests ha been mute as if the mood g le ic. nt ad ed, was more one of resignation th of fury. PASOK surviv the Nove m han ved ember 7, 2010 local electio on 0, ons which Prime Minis Papandre h ster eou, forced to reverse polic o cies, had stak his future. ked Gr reek bond yie elds had fallen since the EU and IMF lo n U oans, but by l late October y yields on two o-year bonds still stood at 8.7%. Such steep intere rates wou not cause immediate t s a h est uld trouble for G Greece, since EU and IMF loans would meet its need for the nex three years But they po ds xt s. ointed to long g-term questi ions. When th EU and IM loan program ended, w he MF would Greece h have its fiscal house in ord or l der, would it ultimately be forced to default or re d y o estructure its d debt? Al lthough Greece represente only 2.6% of the GDP of the euro a ed area—the gro oup of 17 cou untries that had adopted the euro as a common cur h t rrency—succe or failure of the govern ess nment’s attem to mpt _______ __________________ _________________ __________________ __________________ _________________ _________________ __________________ _______ Senior Lecturer Dante Ros L scini, Research Asso ociate Jonathan Sch hlefer, and Konstan ntinos Dimitriou (M MBA 2009) prepare this case. HBS c ed cases are develop solely as the ba for class discus ped asis ssion. Cases are no intended to serv as endorsements sources of prima data, or illustra ot ve s, ary ations of effective or ineffective man e nagement. Copyrig © 2011 Presiden and Fellows of Harvard College. To order copies or request permission to reproduce ma ght nt H T n aterials, call 1-800-5 545-7685, write Ha arvard Business School Publishing, Bo oston, MA 02163, or go to www.hbsp o p.harvard.edu/edu ucators. This publica ation may not be d digitized, photoco opied, or otherwise reproduced, poste or transmitted, without the permis ed, w ssion of Harvard Bu usiness...
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