A taste of economicsMr Bestwick

July 2015

Can you name the 19 member countries of the euro single currency?

• Austria• Belgium• Cyprus• Estonia• Finland• France• Germany• Greece• Ireland• Italy

• Latvia• Lithuania• Luxembourg• Malta• Netherlands• Portugal• Slovakia• Slovenia• Spain.

What is today’s session about?

• What is ‘debt’?• Who borrows money?• Why do governments/countries get into ‘debt’?• What is ‘wrong’ with debt?• Why has Greece got into such high levels of debt?• What do its creditors want Greece to do? Austerity – The Good, The

Bad and the Ugly.• Why are they refusing? The ‘no’ vote.• What could be the impact on Greece and the Eurozone? The ‘Grexit’.

Outline

What is ‘debt’?

Who borrows money, why and from where?

Who borrows money Reason for borrowing money (how they might spend it)

Who they borrow the money from

Why do governments get into debt?

First, ask yourself “where does the government get its money from (apart from that which it borrows!)”?

Why do governments get into debt?

If the money that the government raises from taxation is not enough to pay for all its expenditure it will have a BUDGET DEFICIT and so it will need to borrow money.

Why might debt be a problem?

UK is not the only one in debt…

Why did Greece get into a problem with debt?

- ‘cheap’ borrowing- High government spending – pensions,

infrastructure etc.- Widespread tax evasion- Hidden debts

Why could it be a problem for these countries and institutions (IMF, ECB) if Greece failed to repay its debts?

austerity…not a particularly nice word

• Austerity measures – where the government makes decisions that will cut the amount of spending it does in order to reduce the budget deficit

• The institutions that are owed money by Greece want to (among other things)REDUCE PENSIONS - make the state retirement age olderIncrease VAT on a wider range of goodsBut it is difficult when… http://www.bbc.co.uk/news/world-europe-33336195

• "austerity is like trying to extract milk from a sick cow by whipping it“ Yanis Varoufakis (Former Greek Finance Minister)

Greece leaving the euro? The ‘grexit’• A lot of talk of the Grexit – Greece ‘leaving’ the Euro single currency and returning to

its own currency such as the Drachma

• This is because Greek banks are running out of cash and the ECB, IMF and EU are as yet refusing to ‘bail them out’ and Greece has repayment dates coming up.

• How do you pay your bills when you have no cash? For a country with its own currency, it can print money through the ‘central bank’ e.g. UK and Bank of England – but Greece doesn’t have one – it shares the European Central Bank with 18 other countries.

• If Greece was to leave the Euro, it could print Drachmas to pay some of its bills, but who wants to take a currency that has no history? Is it worth it?

Economics – it’s everywhere.

• Transition work:• Write out a timeline of events for the Greek debt issue and their ability to stay

in the Euro: start from today (an important weekend) for the next two weeks.• http://www.bbc.co.uk/news