greece crisis explained

24.Gunjan Kumar29.Manisha Kumari36.Raj Babu Kumar45. Sony Marandi

Presented by:

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CONTENT

• Introduction of Greece economy

• Reason for Greece crisis

• Impact of US subprime crisis on Greece

• Impact on major European economies

• Measures taken by EU, ECB and IMF to overcome crisis

• Conclusion

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INTRODUCTION TO GREECE

• Capital – Athens

• Currency before euro – Drachma

• Adopted euro as currency in year 1999

• Main sector with greater contribution to GDP is service sector (80 percent

mainly tourism)

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REASON FOR GREECE CRISIS• The ECB was empowered to make only monetary policies

• Eurozone member states to make fiscal policies

• Interest rates for loans to smaller European countries reduced to less than 5%

from 20%

• Reckless borrowing for populist programmes

• Increasing government debt – which Greece managed to repay with EVEN

MORE borrowed money

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• Reasons

– Excessive expenditure

– Mismanagement

– Obsolete Pension System

• Greek economy significant problem

– Government expenditure increased by 87%, revenue grew by only 31%

– Rising unemployment

– Tax evasion

– Corruption

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Greece’s G.D.P. and Unemployment Rates in Europe

Source: Eurostat

7Too many people depend for their livelihood on the too few who work

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IMPACT OF US SUBPRIME CRISIS ON GREECE• Acute credit crisis, and borrowing stopped

• Greece’s credit rating downgraded by leading rating agencies to BBB+

• Greece couldn’t borrow anymore, couldn’t repay its debts

• magnitude of the Greek debt: 175% of the country’s GDP

• spike in unemployment, a crisis of confidence, decrease in foreign investment, and political

uncertainty

• budget deficits became unsustainable

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IMPACT ON MAJOR EUROPEAN ECONOMIES

Gross government debt as a percentage of gross domestic productSource: Eurostat

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PROBLEM FOR GREECE• Euro is the major problem for Greece, as it cannot devalue its currency

• Ageing Greek population

• Overstaffing and poor productivity

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MEASURES

• First round of crisis response (may 2010): 3 years

package of €110 billion by IMF (€ 30 billion) and

Eurozone(€ 80 billion)

• ECB provided substantial liquidity support to

Greek’s private banks (b/w Jan 2010 to May

2011) - €51 billion

• The European union, the IMF and the ECB set up a tripartite committee (The

TROIKA) to prepare an appropriate programme

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• Again Euro zone provided loan - July 2011 €109 billion

• ECB started buying government bond from secondary market to reduce bond spread and to

increase the confidence of the investors

– Between May 2010 to June 2011 ECB purchased €78 billion bonds, out of which €45

billion from Greece government

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

spending

• Austerity measures are outlined in Feb 2010

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AUSTERITY MEASURES

• Freeze in the salary of all gov. employees

• 10% cut in bonuses & payment of overtime work

• 30% cut in Christmas & leave for absence

• Increase in VAT as 23% goods and services,11% on food and 5.5% on stationary

• Return of a special tax on high pensioners

• Average age of retirement for public sector employee had increased from 61 to 65

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Ever since December 2010, depositors have been shifting Euros

from Greek banks to banks elsewhere in the Eurozone, notably

Germany

The loss in deposits has been huge and banks are genuinely facing

liquidity issues

It was largely expected that the bailout package would help to keep banks

liquid but the bailout has been suspended

As a result run over banks

Banking issues..

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IF GREECE HAS RECEIVED BILLIONS IN BAILOUTS, WHY HAS THERE STILL BEEN A CRISIS?

• The bailout money mainly goes toward paying off Greece’s international loans,

rather than making its way into the economy

• Deep economic overhauls required by the bailout dea

• Leaders are showing impatience, unlikely to tolerate the foot-dragging of past

administrations

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CONCLUSION• Due to over public expenditure and over borrowed. Greece was at the verge of default.

• Greece govt. has taken tight austerity measures to bring down budget deficit to 0.9%

of GDP by 2015. But due to excessive expenditure cut and unemployment, the

disposal income(saving) of public will be reduced.

• The EU, IMF, ECB lending to Greece to solve the underlying problem. But the

maximum money is spent for repayment of debt not for productive use.

• Though they are pumping money in Greece, they are not sure for the future of Greece

economy.