Characteristics of the 2009/2010 financial crisis in Greece and the probability of a bank run
KeywordsGreece's financial crisis, financial crises, currency crises, banking crises, the Kaminsky-Reinhart model, bank runs, moral hazard, the Euro, the eurozone, the European Union, indebtedness, austerity plan, government bailout.
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AbstractThis thesis investigates in what ways, if any, the 2009/2010 financial crisis in Greece is unique and how likely a bank run is to occur in the country. To investigate the first matter, a qualitative approach is used to determine the characteristics of Greece’s financial crisis. The characteristics are then compared to those of earlier crises in other countries. The probability of a bank run is determined by a quantitative approach, using the Kaminsky-Reinhart model. Our results show that the characteristics of the financial crisis in Greece are indebtedness, the Euro, moral hazard and a non-existent acceptance for austerity. Each one of these have also been characteristics of previous crises in other countries, and thus, we do not find the crisis in Greece to be unique. However, it could be argued that some of the events leading up to the characteristics are unique. For example, the way in which the Greece government used its accumulated debt - to give the citizens the world’s most beneficial pension terms - is unique. If we were to choose one crisis that resembles the one in Greece the most, the 2008 financial crisis in Latvia would be it. Signals indicating a financial crisis in Greece have been increasing since 2006/2007, and the probability of a banking crisis was 15% at the end of 2009, but would according to the model probably have been higher if it was not for Greece being a member of the eurozone. A measure of the probability of a currency crisis is also obtained through the model, though this number is probably an overestimate due to the Euro as Greece’s common currency. Furthermore, results from the Kaminsky-Reinhart model support previous research on the causality between banking crises and currency crises; signals in Greece were indicating a banking crisis prior to a currency crisis.