INTRODUCTION

Capital Athens
Currency before Euro Drachma
Adopted Euro as currency in the year 1999
Main Sectors with greater contribution to GDP
a) Shipping
b) Tourism
Total Area- 131,990 sqkm
Population-10,787,690
Total GDP(nominal)- $305.415 billion

BACKGROUND

Public debt 329.351 billion (144.9% of GDP)

Budget deficit 24.125 billion (10.6% of GDP)
Revenues 89.750 billion (39.5% of GDP)
Expenses 114.213 billion (50.2% of GDP)
First quarter of 2011- national debt of Greece 300 billion ($413.6 billion), which is bigger than
the country's economy. The country's deficit (its
expenditure in comparison to its revenue) is 12.7%.
*

Data as on 2010

REASONS FOR GREECE CRISIS

Greece facing Sovereign Debt Crisis
Accumulated high levels of debt during the decade before the
Financial crisis
As the crisis deepened there was a liquidity crunch in world
economy.
Reasons :
Rising government debt levels
Excessive Expenditures
Mismanagement
Unregulated Labor Market
Obsolete Pension System

FACTORS CAUSING FINANCIAL CRISIS

INTERNATIONAL FACTORS
Currency Devaluation
a.
b.
c.
d.

Helped finance the borrowing

Misreported official economics data
In 2009, deficit estimated from 6% to 12.7%
In Jan 2010 it was 13.6% and 216 bn

INTERNATIONAL FACTORS
Downgrading of Debt
a. S&P and Moodys
downgraded greece
economy
b. Greek access to cheap
central bank funding
c. Yield on greek bonds
fell from 15.3%to 8.5%
in 2010
d. On 22nd sept. 2011
bonds were trading at
23.7%

INTERNATIONAL FACTORS

Rising of Debt Levels

a.

Excessive govt. spending

increased debt level
b. Fiscal deficit was 0.6%
before it grew to 7%
c. Debt rose from 66% to
88%

INTERNATIONAL FACTORS

Loss of Confidence
a. On Dec.5, 2001 S&P
placed long term rating
b. Rising sovereign prices
affected confidence
c. Questions raised about
creditworthiness

DOMESTIC FACTORS

High Spendings and Weak Revenues

a. Govt. expenses increased by 87% and revenues by
31% over a period of six years
b. Tax evasion and unrecorded economy
c. Spending on public administration higher than any
OCED member

DOMESTIC FACTORS

Declining International Competitiveness

a. High relative wages and low productivity
b. Export was 3.8%, half of the imports

IMPACT ON EU

IMPACT ON EU

Fear of Contagion
- Investors increasingly nervous.
- If Greece forced to default , contagion is a strong possibilty.
- Cascade of sovereign debt crises.

Concern over large European Banks like BNP Paribas, Deutsche

Bank , etc.

Market and investor confidence continues to diminish for EU.

IRELAND :
- Unemployment increased from 4.5% in 2007 to nearly 14 % in
2011.
- Deflation in Domestic property assets.
PORTUGAL:
- Credit rating slashed to near junk status.
- Bond yields rose above 8 %
SPAIN :
- Spains unemployment skyrocketed to 20%

UNEMPLOYMENT PERCENT

IMPACT ON U.S

Strong bilateral relations between EU and U.S.

Loss of confidence in Euro.

Depreciation of Euro relative to U.S dollar.

U.S trade deficit may widen.

IMPACT ON INDIA

IMPACT ON INDIA
The

Greek Prime Minister expected the volume of Indo-Greece trade

to double by 2010.
Robust

legal and tax framework offering incentives, such as

subsidies or grant exemptions for attracting foreign investors
Was

a part of the EU and therefore considered a safe market

IMPACT ON MARKETS
Short term effect
Negative impact on the Indian
stock market ,will lead to
lower reserves

Depreciation of the Indian

rupee helping the growth
prospects in the export sector

Long term effect

The Euro zone becomes
unattractive given debt
servicing and currency
concerns
Investors may shift their
attention to emerging
markets such as India and
China

IMPACT ON TRADE

Indias export growth rate grew by 40 %- 63 % during April to

August 2008
26.1 % in September 2008

Turned negative from October 2008 to October 2009 with a low

4.2%

From April-October 2011 exports grew by 46%

IMPACT ON TRADE

The effect on trade expected to be lesser than that on the markets.

Only 0.05 per cent of India's exports go to Greece

Indian banks have virtually no direct exposure to Greece

One of the largest trading partners of India , Germany also one of the
rescuers for Greece in this crisis.
The complete effect of the crisis yet to be seen

GLOBAL RESPONSE

MEASURES
The European union , the IMF & the ECB set up a tripartite
committee (the TROIKA) to prepare an appropriate programme.

First round of crisis response (May 2010 ): 3 years package of

110 billion ,Contributed by IMF ( 30 billion) and Euro zone (
80 billion).

ECB

provided substantial liquidity support to Greeks private

banks [b/w Jan 2010 to May 2011] 51 billion.
Again

Euro zone provided loan - July 2011 109 billion

MEASURES
Between May 2010 to June 2011 ECB purchased 78 billion
bonds ,out of which 45 billion from Greece govt.

6.The EFSF (European Financial Stability Facility) of 750

billion, which could be replaced by ESM (European Stability
Mechanism) of 500 billion permanent bailout fund

MEASURES
EU also made a proposal to make a single authority responsible
for tax policy and govt. spending.

Austerity measures in Feb 2010 (1st austerity measure)aimed to

reduce government budget deficit to 3% of GDP by 2014.

Freeze

in the salaries of all govt. employees.

10% cut in Bonuses & payment of overtime work.
8% cut in public sector allowances .

MEASURES
2nd Austerity Measure :[May 2010]
30% cut in Christmas & leave for absence.
Further 12% cut in Bonuses & 7% cut in public and private

employee
Increases in VAT[10%] - 23%(goods & Services), 11%(Food) and
5.5%(stationery).
Return of a special tax on high pensions.
Equalization of men's and women's pension age limits.
A financial stability fund has been created.
Average retirement age for public sector workers has increased
from 61 to 65.

MEASURES
3rd austerity measure:[Jan2011]
Further cut in salaries by 8% for public employee.
The 13th and 14th salaries paid to civil servants
Public utilities employees abolished
Flat-rate vacation allowances totaling 1,000 a year introduced

for public sector workers earning less than 3,000 per month.
Limit of 800 per month to 13th and 14th month pension
installments; abolished for pensioners receiving over 2,500 a
month.
10% rise in luxury taxes and taxes on alcohol, cigarettes, and fuel.

RECENT UPDATES
Greece out of Eurozone?
People of Greece have no Confidence in Govt
Greece in talks with private creditors for bond
swaps
Interest rates for bond swaps?
Greece is in a verge of default.
Tight Austerity Measures taken
Max money spent for repayment of debt, not for
productive use.

Presented by:
Vipul Tenpe (162)
Manan Thadeshwar (164)
Pearl Thomas (166)
Tanmay Tungare (168)
Kamlesh Varma (170)

THANK YOU !