Introduction to Greece Economy

Reasons for Greece Crisis

Impact on major European
Economies
Impact on India
Measures taken by ECB, IMF,
ESM,EFSF to overcome Greece
Crisis
Current News
Conclusion

Capital - Athens

Currency before Euro Drachma

Adopted Euro as currency in the

year 2001

Main Sectors with greater

contribution to GDP

a) Shipping
b) Tourism

Introduction to Greece
Economy
Greece is facing Sovereign Debt Crisis
since it accumulated high levels of debt
during the decade before the Financial
crisis when the market was highly liquid.
As the crisis got deepened there was a
liquidity crunch in world economy thereby
making borrowings difficult as well as
expensive and thereby improper debt
repayments on time.
Reasons:

Excessive Expenditures
Mismanagement
Unregulated Labour Market
Obsolete Pension System

Reasons for Greece

Crisis
IMPACT

Income and savings had a

downward trend worldwide after the
SUB-PRIME Crisis Unleashed

Volatile Capital markets due to

liquidity crunch resulted in lower
capital flows

Strict norms were made for Banks

to grant loans and rates were also
increased thereby making borrowings
costlier for Greece compared to
earlier

Overall Effect on Prime Sectors

( Tourism, Shipping)contributing to
GDP.

GREEK ECONOMYSIGNIFICANT
PROBLEMS

Government expenditures
increased by 87%, revenues grew by
only 31%.

Rising Unemployment.

Insufficient Bureaucracy.

Tax Evasion.

Corruption.

IMPACT OF GREECE
CRISIS ON INDIA

Trade

Markets

Liquidity Situation

Rupee Value

Borrowings

MEASURES
1. The European union , the IMF & the
ECB set up a tripartite committee (the
TROI KA) to prepare an
appropriate programme.
2. First round of crisis response (May
2010 ): 3 years package of 110 billion
,Contributed by IMF ( 30 billion) and
Euro zone ( 80 billion).
3. ECB provided substantial liquidity
support to Greeks private banks [b/w Jan
2010 to May 2011- 51 billion.
4.Again Euro zone provided loan - July
2011 109 billion.

5. ECB starts buying govt. debt from

secondary market to reduce bond spread
and to increase the confidence of investor.
Between May 2010 to June 2011
ECB purchased 78 billion bonds ,out of
which 45 billion from Greece govt.
6. EFSF(European Financial Stability
Fund ) :The EFSF is intended to consist of
a fund of 750billion, which would be
made up as follows:
440 billion would be made
available in loan guarantees from Euro
zone Member States;
b.
60 billion would consist of
emergency funds made available by
the European Union itself; and
c.
250 billion would be provided
under arrangements with the
International Monetary Fund.
a.

MEASURES

7. EU also made a proposal to make a

single authority responsible for tax policy
and govt. spending.
8. Austerity measure are outline in Feb
2010 (1st austerity measure)
Freeze in the salaries of all govt.
employees.
10% cut in Bonuses & payment of
overtime work.
8% cut in public sector allowances .

MEASURES
MEASURE
2nd Austerity Measure :[May 2010]

Aim to reduce budget deficit to 3%

of GDP by 2015.

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:[Jan 2011]

Further cut in salaries by 8% for

public employee.

The 13th and 14th salaries paid to

civil servants and public utilities
employees were abolished & flat-rate
vacation allowances totalling 1,000 a
year were introduced for public sector
workers earning less than3,000 per
month.

Limit of 800 per month to 13th

and 14th month pension instalments;
abolished for pensioners receiving
over 2,500 a month.

10% rise in luxury taxes and taxes

on alcohol, cigarettes,
and fuel.

CURRENT NEWS
Protests have broken out over the
austerity package currently under
debate in parliament that includes
almost $40 billion in spending cuts and
tax increases

Germany will do all it can to rebuild

confidence indebt-stricken Greece.

G20 leaders have come up with a

plan to protect the banking system
against crisis by recapitalizing the
exposed banks so they can absorb the
losses without going bankrupt.

Both France & German are trying

to save Greece, and would go
bankrupt if there were a sudden
default.

Greece's finance minister has told

to resolve the debt crisis, there will be
a 50pc haircut for bondholders.

US is putting pressure on EU for

saving Greece, otherwise it leads to
double dip recession.

CONCLUSION
As we discussed due to over
public expenditure and over-borrowed.
Now Greece is in a verge of default.

Now Greece govt. is taking tight

austerity measures to bring down
budget deficit to 0.9% of GDP by
2015. But due to excessive
expenditure cut & unemployment, the
disposal income(savings) of public will
be reduced.

The EU,IMF and 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 about the
future of Greece Economy.

Now the condition is in a dilemma

whether to save
Greece or let it go default.