• Abstract and Figures
• Public Full-text

S P E C I A L I Z E D A G E N C I E S T H E P R I C E O F H O P E MINISTERIAL COUNCIL OF THE HELLENIC REPUBLIC Dear Delegates, Welcome to the 31st North American Model United Nations at the University of Toronto! Our names are Jonathan Mostovoy and Elise Wagner and we will be your Greek Financial Crisis committee chairs. Jonathan is a student of the University of Toronto where he is studying Mathematical Applications in Economics and Finance. Elise is also a student at the University of Toronto where she is specializing in International Relations. As delegates of the Greek Financial Crisis Committee, you will spend the next four days emulating the real-life, ongoing decision-making process being made by today’s most prevalent politicians, economists and other relevant personnel concerned with the Greek financial crisis. It is our hope that such a scenario will provide a forum for instructive, innovative, entertaining, and challenging debate and consensus building. We look forward to meeting all of you and witnessing your imaginative solutions to some of the most pressing global issues at NAMUN 2016. Sincerely, Elise and Jonathan Background Guide Content Historical Background The development of an interdependent European Economy The global economy The financial crisis of 2007/2008 The financial crisis in Greece Greece Today Present economic situation Grexit Political Turmoil Future projections Committee The Goal Committee Structure Resolutions and Voting The Press Committee Composition Cabinet Positions Personal Finances Further Research Key Questions for the Cabinet Recommended Resources 2 Historical Background Prediction is, by definition, absolutely and entirely impossible. Every single economic model that attempts to accurately predict the future will inevitably fail at some point. However, armed with historical know-how of similar situations, probabilistic prediction is one of the greatest tools of modern day economics.1 It is our hope that the following brief historical background of today’s extremely volatile economy of Greece, Europe and the world will provide you with a wealth of knowledge to help address the many questions Greek and European political leaders must deal with concurrently. 1.1 The Development of an Interdependent European Economy Europeans throughout history have long awaited the arrival of a stable, secure and prosperous region to live in. In the aftermath of World War II, the pressure for such a reality finally gave way to a string of events that would charter the continent to this ubiquitous desire. However, such events came not in the form of political or militaristic domination, but rather a constructive and dynamic set of economic agreements and treaties between independent European states. The European Coal and Steal Community (ECSC) was the first of such economic agreements to transpire. Signed in Paris in 1951, the ECSC brought France, Germany, Italy and the Benelux countries together in a multi-lateral agreement with the aim of organizing free movement of coal and steel, and free access to sources of production.2 Soon after, at the Treaty of Rome (1957), the European Economic Community was created. This new organization established itself as more than a simple agreement and became a supranational organization moderating and mediating accessible and effective trade.3 1 Gilboa, Itzhak, Andrew Postlewaite, and David Schmeidler. "Probability and Uncertainty in Economic Modeling, Second Version." SSRN Electronic Journal SSRN Journal, 2008. 2 "EUR-Lex Access to European Union Law- ECSC." European Union Law. 2015. Accessed September 1, 2015. 3 Eichengreen, Barry. "European Economic Community." Library of Economics and Liberty. 1992. Accessed September 1, 2015. 3 At the Maastricht Treaty in 1992, the EEC transformed into what we all now know: the European Union (EU). The EU is a political and economic organization consisting of 28 member states. The EU operates through a system of supranational institutions such as the European Commission, the European Central Bank, and the European Parliament.4A gradual transition of increasing interdependence between European countries was finalized in 2002 when 19 of the 26 EU countries adopted the Euro (currency).5 Under the Maastricht convergence criteria, states joining the euro must have sensible and regulated economic policies. The following are the main governing rules: states must ensure inflation remains below 1.5%, budget deficits below 3% of GDP, and a debt-to-GDP ratio of less than 60%. In 2002, when joining the Euro seemed a great economic advantage, many of the first 19 adopters made major economic policy reforms to adopt the Euro. However, these standards seemed to be forgotten at the present: the eagerness of EU officials to develop a large and competitive Eurozone led them to not enforce these protective economic measures.6 Thus, the economic volatility amongst the European countries was not minimized while unconditionally linked to one other - the hubris of the Euro was established. 1.2 The Global Economy Four decades ago, an entrepreneur building a new restaurant probably had one or two local banks that could have provided him with a loan to start his business. Today, that same entrepreneur could quickly search online for a variety of loans offered from different countries with lower interest rates and in different currencies. Globalization, as it stands today, is not merely an increase in global trade, diplomacy and shared information, but an irreversible dependence on each other’s economies. We would strongly suggest the following two articles that describe the development and present situation of the global economy we all live in. 4 "The History of the European Union." EUROPA. 2015. Accessed September 1, 2015. 5 "Who Cann Join and When? - The Euro." European Commission. 2015. Accessed September 1, 2015. 6 "The Euro." EUROPA - European Union. 2015. Accessed September 1, 2015. 4 • http://www.imf.org/external/pubs/ft/fandd/2002/03/hausler.htm • http://www.forbes.com/sites/mikecollins/2015/05/06/the-pros-and-cons-of-globalization/ 1.3 The Financial Crisis of 2007-08 When the Lehman Brothers, an enormous global investment bank, collapsed in September of 2008 it brought down the world’s financial system. A few trillion dollars of taxpayer-financed bailouts later, we can still see the adverse effects of this global economic meltdown transpiring today. Many nations’ GDP are still below their pre-crisis peak, especially in Europe, where the financial crisis of 2008 has now shaped into the euro crisis. Years before the 2007-08 crisis, irresponsible mortgage lending in America became an extremely new lucrative business for banks. Home loans were given out to “sub-prime” borrowers with poor credit histories – many of these borrows struggled to pay back the loans. These risky mortgages were then passed on to (very imaginative) financial engineers, who turned them into “low-risk” securities by mixing and matching large numbers of subprime and normal mortgages into one. The big banks that were issuing these securities argued that the property markets in different American cities were not highly correlated, and in fact in some instances had negative correlation. Unsurprisingly, this was an entirely fallacious assumption. Beginning in 2006, American housing markets began losing value and collectively lost well over a 1/3rd of its value by 2008 – a big problem for the holders of these assumed “low-risk” securities.7 When America’s housing market turned, a chain reaction exposed how fragile and synthetic the global financial system was (and for that matter still is, but that’s for another section). The clever financial engineering (like aggregating subprime mortgages) proved superbly risky. Mortgage- backed securities became essentially worthless, and many of the financial securities’ rating agencies were exposed as having zero credibility when it came to their rating schemes. A global fire sale of these securities made a huge dent in many banks’ balance sheets since enormous losses had been incurred through acquiring and then selling these securities. This sharp decline in the 7 "Crash Course; the Origins of the Financial Crisis." The Economist, September 7, 2013. 5 evaluations of some of the largest firms in the world was quickly reflected in the common markets, and thus how a whole lot of people quickly lost their savings.8 Financial failures were at the heart of the crash. But the banks were not the only institutions to blame - central bankers and other regulators bear responsibility too. Central bankers encouraged huge capital inflows from Asia and Europe, in which through the borrowing from American money-market funds (mistake #1), they were able to purchase high yield risky American securities (mistake #2).9 As noted above, it wasn’t just the Americans that brought down the global economy, but Asia and Europe as well. For example, the creation of the Euro spurred an extraordinary expansion of the financial sector both within the Euro area and in nearby banking hubs such as London and Switzerland – all of which eagerly embraced risky investments from America, which would eventually crash in 2007-08.10 The next section will be devoted to a discussion on how the 2007- 08 global financial crash transformed into the Euro debt crisis, and into the Greek crisis of today. 1.4 Financial Crisis in Greece During the first decade from when the Euro had first been in circulation, Southern European economies took on huge current-account deficits while countries in northern Europe ran offsetting surpluses. The Economist explains: “The imbalances were financed by credit flows from the Eurozone core to the overheated housing markets of countries like Spain and Ireland. The euro crisis has in this respect been a continuation of the (global) financial crisis by other means, as markets have agonized over the weaknesses of European banks loaded with bad debts following property busts.

Load more

  20

Copy Link