Greek Sovereign Research Articles

When Do Banks Do What Governments Tell Them to Do? A Comparative Study of Greek Bonds’ Management in France and Germany at the Onset of the Euro-Crisis

ABSTRACT At the onset of the Greek sovereign debt crisis in early 2010, the French government asked French banks to retain plummeting Greek bonds on their balance sheets. And the French banks did exactly that. At around the same time, the German government also asked German banks to retain plummeting Greek bonds on their balance sheets. Yet German banks sold the bonds abundantly. Both governments depended on profit-oriented banks to fulfil a mission of public interest, but neither had formal levers to ensure that banks would do as they were told. Why did the French banks comply with their government’s request while their German counterparts did not? Taking advantage of an opportunistic design and building on data gathered in newspapers and through 20 in-depth interviews, this paper argues that banks’ decisions are the result of long-term institutionalized state-bank modes of coordination in France and Germany. In France, bankers understood the government’s request as being embedded within a long-term relationship of reciprocal favours, which led them to comply. In Germany, state officials resorted to straightforward pressures such as naming and shaming banks. But as soon as the pressure died down, the banks sold out.

Reconstruction of the Greek Economy: Stepping Beyond the Greek Sovereign Debt

The Greece sovereign debt crisis has been dominating headlines for a while now, and is an issue which not only affects Greece and its citizens, but also the whole Eurozone and, in an indirect way, the rest of Europe, making it a topic of international concern. Despite this, the concept and cause of the crisis remain a mystery to many. This paper analyses the issue of the Greek sovereign debt from the perspective of the territorial integrity, as it not only highlights the surrounding issues, but also analyses the global impact of the situation. The paper then puts forward views of and roles of countries as well as international organizations, such as the World Bank and the International Monetary Fund, and then concludes by providing a way forward.

Judicial and Constitutional Review During the Greek Sovereign Debt Crisis: A General Overview

Judicial and Constitutional Review During the Greek Sovereign Debt Crisis: A General Overview

News Coverage of the Greek Sovereign Debt Crisis in German Public Service Broadcasting: A Case Study Analysis in Tagesschau, Heute, Brennpunkt and ZDF Spezial

ABSTRACT This study analysed German public-service news coverage of the Greek sovereign debt crisis in the regular news bulletins Tagesschau and heute and the special broadcasts Brennpunkt and ZDF spezial (which provide supplementary reporting on special events) to establish whether the coverage met standards of relevance, neutrality, balance, diversity and analytic quality. It found that although the news coverage was commensurate with the relevance of the topic and satisfied the criterion of diversity, it fell short when it came to the criteria of neutrality, balance and analytic quality. During the study period, the coverage focused on a very small number of topics, journalists allowed their own value judgements and opinions to creep into news and reports, and overall there was an evident slant against the position of the Greek government.

Sovereign Bond Market Spillovers from Crisis-Time Developments in Greece

The systemic importance of a country is a crucial component in the European Stability Mechanism's assessment of financial assistance requests. However, disentangling the effect of developments in one country on other countries in real time is fraught with difficulties. Using empirical methods that provide ex-ante measures of risk exposure, we find that changes in the tail risks of Greek sovereign bond returns resulted in immediate and significant cross-market spillovers to other euro area sovereign bond returns. Our approach provides real-time insights on evolving cross-market interdependencies, such as Germany gradually becoming a safe haven from Greece. We confirm that developments in Greece drive our tail-risk results by linking them to a newly developed intra-day event database. This approach also allows us to provide a more intuitive quantification of the spillovers emanating from Greece. Taken together, our findings demonstrate that developments in Greece significantly affected other euro area sovereign bond markets over and beyond global, euro area and country-specific factors. Our results provide evidence for the systemic importance of Greece throughout the European sovereign debt crisis.

The contagion of the Greek debt crisis on the EMU sovereign bond markets: a Garch-DCC approach

We use the dynamic conditional correlation (DCC) model of Engle (2002) to examine the contagion effects from the Greek debt crisis on seven Economic and Monetary Union (EMU) sovereign bond markets. Following this purpose, daily data on ten-year sovereign bond yields for each market were collected for a period ranging from 1 September 2009 to 31 December 2015. We show a strong evidence of contagion effects from the Greek sovereign bond market to those of the other peripheral countries during the spring of 2010 suggesting a «wake-up call contagion» phenomenon. Except for this period, the DCC return series strongly reject the hypothesis of contagion stemming from the ten-year Greek government bond to our seven sovereign debt markets. We thus argue that over time, investors became more confident that the Greek debt crisis was a special case independent from the other countries. Our results are very important for policymakers and investors.

Cash holdings, corporate performance and viability of Greek SMEs

PurposeSeveral theories have been developed trying to explain the corporate decisions on cash holdings. Stakeholder theory is one of the arguments that urge firms with strong stakeholder relationships to hold more cash. The purpose of this paper is to shed further light on this issue by examining the impact of cash holdings on the financial performance and viability of Greek Small-Medium Enterprises before and after the Greek sovereign debt crisis.Design/methodology/approachThe authors collected a large sample from Small-Medium-sized Enterprises (SMEs) and a comparable sample from large firms operating in Greece during the period 2003–2016. Panel regression analysis was performed before and after the Greek debt crisis.FindingsResults indicated that cash holdings contribute positively to the profitability and viability of firms validating the precautionary theory of cash holdings in Greece. Before the crisis, SMEs and large firms both benefited significantly by cash holdings but after the crisis that positive impact of cash is more evident and significant for SMEs.Practical implicationsThese findings corroborate the hypotheses that during a period of limited lending (and severe financial turmoil); cash holdings (and effective cash management) could be a vital tool for sustaining SMEs’ viability and financial performance. This study offers useful managerial implications and contributes to the ongoing debate about the impact of cash holdings on corporate performance.Originality/valueThis is the first study in the Greek business setting trying to examine the impact of cash holdings on financial performance within stakeholder-oriented firms during a period of financial turmoil.

Labor market distortions under sovereign debt default crises

Risk of sovereign debt default has frequently affected both emerging market and developed economies. Such financial crises are often followed by severe declines of employment that are hard to justify using standard economic models. This paper documents that labor market distortions deteriorate substantially around debt default episodes. Two different explanations for such dynamics are evaluated by linking these distortions to changes in labor taxes and costs of financing working capital. When added into a dynamic model of equilibrium default, these features are able to replicate the behavior of the observed labor distortion around a period of financial crisis and can also account for substantial declines of employment. In the model, higher interest rates are propagated into larger costs of hiring labor through the presence of working capital. Then, as an economy is hit with a stream of bad productivity shocks, the incentives to default become stronger, thus increasing the cost of debt. This reduces firm demand for labor and generates a labor wedge. A similar effect is obtained with an endogenously generated counter-cyclical income tax rate policy that also rationalizes why austerity is applied during deep recessions. The model is used to shed light on the recent events of the Euro Area debt crisis, in particular, the Greek sovereign debt default.

Using the Local Law Advantage in Today’s Eurozone

Three key legacies of the Greek sovereign debt restructuring were (a) the use of the “local law advantage” to retrofit single-limb collective action clauses (CACs) in the Greek law governed bonds, (b) the strategy of the private foreign law governed bondholders to use the per-series CACs to hold out from the restructuring and (c) the exemption of the official sector bondholders from the restructuring. The introduction of the double-limbed Eurozone CACs coupled with the ECB’s declaration (in the context of the Gauweiler litigation) that it will vote against any restructuring of Eurozone sovereign bonds, have shown the persistence of the latter two legacies of the Greek restructuring. They have also raised the possibility that a Eurozone country, named Arcadia in this paper, which loses market access today and in need of restructuring its debt could only do so through the use of the first legacy, the “local law advantage”. The paper assumes that the use of the “local law advantage” is an option open to Arcadia alongside the use of the official Eurozone CACs and considers other possible challenges to the “local law advantage” and in particular challenges based on the European Convention of Human Rights by reference to the Mamatas judgment. In doing so it continues a discussion started by Buchheit and Gulati (Use of the Local Law Advantage in the Restructuring of European Sovereign Bonds) and Weidemaier (Restructuring Italian (or Other Euro Area) Debt: Do Euro CACs Constrain or Expand the Options?) and proposes that the Mamatas principles can provide guidance for the use of the “local law advantage” both in the context of the Eurozone crisis, but also more broadly in the discussion on the limits of the exercise of sovereign discretion.

Greek sovereign crisis and European exchange rates: effects of news releases and their providers

In this paper, we study the contribution of the geographical (both the regional and international) aspect of news releases, related to the Greek sovereign debt crisis. We investigate the impact of the Greek debt crisis via economic news and surprises on Euro exchange rate volatility and volatility-jumps within a Tobit regression framework. In particular, the impact of three categories of news is examined via the respective number of dummy variables, the number of news per day, and news surprises of 2-year, 5-year and 10-year government bonds and CDS. Also, the role of news releases providers is researched. The analysis starts from 1 July 2009 and ends on 31 May 2015. The data comprises intraday prices for (1) Euro to US dollar (Euro/USD), (2) Euro to Japanese yen (Euro/JPY), (3) Euro to Great British pound (Euro/GBP), (4) Euro to Swiss franc (Euro/CHF) and (5) Euro to Australian dollar (Euro/AUD). Our findings reveal that Greek events have an important impact on the behavior of the Euro exchange market. Secondly, the identity of the provider of news releases about the Greek sovereign crisis affects Europeś exchange rates highlighting homogeneity problems in the Eurozone. The uncertainty, introduced by the Greek sovereign crisis, as shown by our findings, signifies the financial instability in the Eurozone and the strength of the Euro currency. This is vital for policymakers in a common currency environment. Policymakers could evaluate such findings and re-examine the structural plan of the Euro, targeting primarily at the financial integration of the member states.

The Greek Debt Crisis and Sovereign Debt Litigation in Austrian Courts

The Greek Debt Crisis and Sovereign Debt Litigation in Austrian Courts

Did Spillovers From Europe Indeed Contribute to the 2010 U.S. Flash Crash?

Using intraday data, we study spillovers from European stock markets to the U.S. in the hours before the flash crash on 6 May 2010. Many commentators have pointed to negative market sentiment and high volatility during the European trading session before the Flash Crash. However, based on a range of vector autoregressive models, we find no robust evidence that spillovers increased at that time. On the contrary, spillovers on 6 May were mostly smaller than in the preceding days, during which there was great uncertainty surrounding the Greek sovereign debt crisis. The absence of evidence for spillovers underscores the difficulties in understanding the nature of flash events in financial markets.

Greek Government Bonds Immunity Case

State immunity — Jurisdictional immunity — Greek sovereign debt crisis — Distinction between acta jure imperii and acta jure gestionis — Greek debt restructuring law as acta jure imperii — Issuing of government bonds as acta jure gestionis — Plaintiffs’ claims based on performance of terms of issue of government bonds or compensation for their non-performance following debt restructuring — Whether State immunity applicableJurisdiction — gBrussels I Regulation — Lawsuits demanding performance of terms of issue of government bonds or compensation for their non-performance — Whether “civil matter” under the Brussels I Regulation — Whether Brussels I Regulation applicable — The law of Austria

The impact of the 2008 financial crisis on the Greek banking system

The goal of this paper is to explore the roles of both the 2008 financial crisis and the Greek sovereign crisis in the Greek banking system and more specifically, the effect on its operating expenses and non-performing loans (NPLs). Through the methodology of panel data across all Greek banks, spanning the period 1984-2015, the results document the actual determinants that drive the banking system that were responsible for driving the Greek economy into the austerity programs.

The impact of the 2008 financial crisis on the Greek banking system

The goal of this paper is to explore the roles of both the 2008 financial crisis and the Greek sovereign crisis in the Greek banking system and more specifically, the effect on its operating expenses and non-performing loans (NPLs). Through the methodology of panel data across all Greek banks, spanning the period 1984-2015, the results document the actual determinants that drive the banking system that were responsible for driving the Greek economy into the austerity programs.

Quality of financial reporting under IFRS and corporate governance influence: Evidence from the Greek banking sector during crisis

The financial system consists, without doubt, one of the most important determinants of the world national economies, which undergoes numerous changes and challenges with major impact on the economic growth prospects of a country. A healthy financial system is the steam engine of the economy, a major source for economic growth through which capitals are attracted for investments; hence, it is regarded as a trustee of financial stability. Given the difference in structure and function of the financial sector in various countries, we investigate the extent to which the implementation of International Financial Reporting Standards (IFRS) accompanied by Corporate Governance practices affected the quality of financial and narrative reporting offered within published statements of Greek banks for the period from 2008 to 2011. The originality of the work lies at the fact that it focuses on Greek financial institutions for a period that incorporates both the burst of global financial crisis and the beginning of the Greek sovereign debt crisis making inferences on quality of reporting as a result of IFRS and Corporate Governance practices adoption. Our analysis revealed the positive contribution of both of the above categories of variables to the accuracy and quality of the information offered to stakeholders.

Twitter versus Traditional News Media: Evidence for the Sovereign Bond Markets

This paper compares news in Twitter with traditional news outlets and then emphasizes their differential impact on Eurozone's sovereign bond market for a homogeneous news topic. We find a two-way information flow between Twitter's “Grexit” tweets and the respective mentions in traditional news outlets. The influence of Twitter on the traditional news is consistently more prolonged, especially in high-activity periods. We also assess the differential impact of the two news sources on sovereign spreads over and above the impact of economic/financial fundamentals, namely measures of default risk, liquidity risk and global financial risk. Our focus is on the borrowing costs of Eurozone's periphery; for comparison reasons, we also consider France as a core Eurozone country. The effect of Twitter on the Greek sovereign spread is positive and of higher magnitude than that of traditional news outlets. Weak contagion effects are recorded primarily for the case of Portugal and Ireland.

From financial support package via rescue aid to bailout: Framing the management of the Greek sovereign debt crisis

In the spring of 2010 Greece officially turned to the EU for help in order to prevent itself from a sovereign default. However, the Treaty on European Union explicitly prohibits any member state to ask for a so-called bailout (i.e., financial assistance) from the other member states or the EU itself. Thus, overnight the Greek financial crisis became a linguistic one as well: how to communicate the notion of financial assistance without implying one? In light of this conundrum, the paper investigates how leading European and American newspapers have communicated the financial assistance by looking at the rather diverse expressions used for the notion of “bailout” that appeared in select articles published on the pivotal dates of the crisis management process. We hypothesized that as the Greek crisis developed, multiple and alternating frames were used in communicating the news on crisis management through the lexical choices the journalists used. The data justified the hypotheses: while the first phase was dominated by the RELIEF frame, this was eventually superseded by the BAILOUT frame by 2 May, the day the deal was finally struck. At the same time, the BUSINESS TRANSACTION frame never appeared as the most significant conceptualisation, implying that journalists were reluctant to view the deal between the two (eventually, three) parties as the result of a rational horizontal relationship between “buyer” and “seller” or between “debtor” and “creditor”.

The Greek Debt Crisis: Like the Enigma of Sphinx. An Estimation of the Probability of Default

The present study deals with the Greek debt crisis and tries to shed light on its determinants, going back to its origins, while examining its negative effects following the burst of the global financial crisis that still plagues the country. This paper also examines the efforts taken to deal with it, a combination of Greek austerity measures and strong financial aid from foreign institutions. Moreover, a probability of default assessment is performed in order to emphasize the fact that, even if the macroeconomic assumptions underpinning the fiscal adjustment program prove realistic and effective, Greek sovereign debt is far from viable and the financial situation of the public sector will remain fragile, having a long and difficult road to follow. Finally, it is pointed out that long term and permanent measures have to be taken in order to address the long-standing weaknesses of the economy and get rid of the vice of default for good, as well as the establishment of a stable political and economic environment.

ECB Interventions in Distressed Sovereign Debt Markets: The Case of Greek Bonds

We study central bank interventions in times of severe distress (mid-2010), using a unique bond-level dataset of ECB purchases of Greek sovereign debt. ECB bond buying had a large impact on the price of short and medium maturity bonds, resulting in a remarkable “twist” of the Greek yield curve. However, the effects were limited to those sovereign bonds actually bought. We find little evidence for positive effects on market quality, or spill-overs to close substitute bonds, CDS markets, or corporate bonds. Hence, our findings attest to the power of central bank intervention in times of crisis, but also suggest that in highly distressed situations, this power may not extend beyond those assets actually purchased.