noted that Greeces debt had been above 100 of GDP since before Greece joined

Noted that greeces debt had been above 100 of gdp

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noted that Greece’s debt had been above 100% of GDP since before Greece joined the euro, and that the statistical revisions had pushed the debt number up as well. The EU closed the excessive deficit procedure in 2007, with the Commission pronouncing itself satisfied that Greece had taken sufficient measures, “mainly of a permanent nature,” and that the country’s deficit would be 2.6% of GDP in 2006 and 2.4% in 2007. The Commission also concluded that “the Greek statistical authorities improved their procedures,” leading to “an overall higher quality of data.” The Commission opened a new excessive deficit procedure in 2009 when Greece’s 2007 deficit was reported at 3.5% of GDP, and that procedure is ongoing in the context of the current situation. This points to a broader problem of a monetary union without a fiscal union, as discussed below in “European Integration.” CRISIS RESPONSES European leaders, the IMF, and the ECB agreed that an uncontrolled, disorderly default on Greek debt would be extremely risky and should be avoided at all costs. They feared that such a default could spark a major sell-off of bonds of other Eurozone members with high debt levels and that European banks exposed to Greece and other Eurozone governments would not be able to weather losses on those investments. Fear of contagion and financial 9
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turmoil drove a major policy response by the Europeans, the IMF, the Greek government, and central banks in May 2010 to avoid a Greek default. When Greece again veered towards default more than a year later, a second crisis response was announced in the summer of 2011. To date, the policy responses have succeeded in avoiding a disorderly Greek default. They have been less successful in putting Greece on a clear path to recovery and containing the crisis. May 2010 The first round of crisis response measures focused on financial assistance from the Eurozone and the IMF, paired with austerity measures and reforms implemented by the Greek government. Central banks also played a role in providing liquidity in the region. Financial Assistance from Eurozone and IMF In May 2010, Eurozone leaders and the IMF announced a three-year package of €110 billion (about $158 billion) in loans to Greece at market-based interest rates. Of the €110 billion, the Eurozone countries pledged to contribute €80 billion (about $115 billion) and the IMF pledged to contribute €30 billion (about $43 billion). Fiscal Consolidation and Economic Reforms in Greece As a condition of financial support from the IMF and Eurozone countries, the Greek government has undertaken ambitious fiscal consolidation measures and economic reforms. An austerity program outlined in May 2010 aimed to reduce the government’s budget deficit by 11 percentage points through 2013, bringing it below 3% of GDP by 2014. The program’s immediate objectives were a deep cut to public spending and enhanced revenue growth through tax increases and a crack-down on tax evasion. Most spending cuts have been to the civil service, including a reduction or freeze on civil service compensation and a civil service hiring freeze. On the revenue side, the government raised the average value-added tax rate
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