What is the Greece Crisis

all about ?
 Greece is a developed
country, with a high standard
of living and "very high" 

Human Development Index,

ranking 25th in the world in
2007
Greece's main
industries
are tourism,
shipping
Greece adopted the euro
as its currency 1999
Jo in e d th e h a n d s w ith
EU
The Boom in the Market !

∗ Greece borrowed
heavily in
international capital
markets to fund
government budget
and current account
deficits.
∗ accumulated high levels
of debt during the
decade before the
crisis, when capital
Im p a ct O f th e Fin a n cia lM e lt
D ow n

∗ As the crisis has

unfolded, and
capital markets
have become more
illiquid, Greece
may no longer be
able to roll over its
maturing debt
obligations.

 “Greece’s deficit to be even
higher, at 13.6% of GDP“

∗ Greek government revised the estimate of the

 government budget deficit for 2009 from 6.7% of
gross domestic product (GDP) to 12.7% of GDP.


∗ In April 2010, Eurostat, the European Union (EU)’s

statistical agency, estimated Greece’s deficit to be
even higher, at 13.6% of GDP.
∗
∗ Greece's credit rating (currently at BBB+) is possible
 within a month. These actions have fostered fear
among
 potential investors in Greek bonds, making it very
difficult
 for the country to borrow money to fund its debt
Greek economy - significant
problems

∗ GOVERNMENT EXPENDITURES
INCREASED BY 87%, REVENUES
GREW BY ONLY 31%
∗
∗ RISING UNEMPLOYMENT
∗ INSUFFICIENT BUREAUCRACY
∗ TAX EVASION
∗ CORRUPTION
∗
 Impact of Crisis

∗ Southeastern Europe


 Greece’s foreign policy focus on the region

and growing trade volumes between the
countries, neighboring Serbia, Albania,
Macedonia, Romania, Bulgaria and Turkey
cannot remain indifferent to the magnitude of
the crisis next door.


∗ Spill-over effect


 As Greek 10-year bonds fall and yields

continue to remain above 6%, sovereign debt
issuance and the risk premium investors
demand to hold securities emitted by Romania,
 Spread Levels
Greek governments had


falsified statistics and

attempted to obscure debt
levels through complex
financial instruments also
contributed to a drop in
investor confidence.


Before the crisis, Greek 10-



year bond yields were 10 to

40 basis points above
German 10-year bonds. With
the crisis, this spread
increased to 400 basis points
in January 2010, which was
Pu b lic D e b t
Growth Rate IN GDP
Cause Of the debt crisis
Both Domestic &
International
Domestically
Internationally

High government The adoption of the euro

spending a
Structural rigidities Lax enforcement of EU

Tax evasion and rules aimed at limiting

Corruption the accumulation of
debt.
 Domestic Causes

∗ Over the past six years, however, while the central

government expenditures increased by 87%, revenues
grew by only 31%,21 leading to budget deficits.
∗
∗ In 2009, Greek government expenditures accounted for
50% of GDP
∗
∗ over-staffing and poor productivity in the public sector.
∗
∗ An aging Greek population - could place additional
burdens on public spending and what is widely
considered one of Europe’s most generous pension
systems.
∗
 Internationally Problem !

∗ the euro has proven to be a major problem for

Greece, as it cannot devalue its currency in
order to lessen its debt burden and to boost
exports, and as it has exposed the weakness of
the Greek economy in relation to other
Eurozone members, most notably Germany.
∗
∗ "A 20 per cent devaluation of the euro is a big
deal, but everyone has to realise that the
benefits of the devaluation are going to be
spread quite unevenly."
∗
 Financial Assistance
Package

∗ In mid- April 2010, the details of the proposed

financial assistance package for this year were
released: a three-year loan worth €30 billion
($40 billion) at 5% interest rates, above what
other Southern European countries borrow at,
but below the rate currently charged by private
investors on Greek bonds.
∗
∗ It is expected that an IMF stand-by arrangement,
the IMF’s standard loan for helping countries
address balance of payments difficulties,
valued at €15 billion ($20 billion) for this year
would precede any assistance provided to
Greece by the Eurozone members.
  Strict savings measures and
deep cuts in public spending

∗ The policy solutions to two of the

major economic issues facing the
Greek government
∗
∗ —cutting large government budget
deficits (which requires
contractionary fiscal policies to
address) and
∗
∗ stimulating the economy during
cyclical economic downturn (which
requires Expansionary fiscal
policies)—are at odds with each
other.
 Reforms for the Recovery

∗ average value-added tax rate from 19% to

21%;
∗ civil servant hiring freeze in 2010
∗ 5:1 retirement/recruitment ratio for new
public sector hires from 2011
∗ 10% cut in civil service salary allowances
(bonuses)
∗ a freeze on state pensions
∗ raising the average retirement age
∗ reducing the number of Greek municipalities
from 1,034 to 370
∗ the legal public entities formed by local
 Future Of Euro Zone

∗ The Creditability of Eurozone

 is seriously damaged and moral hazard
problems are created.
∗ Which is the Next Nation to ask for the Financial
Assistance ( PIIGS )

Portugal Italy Ireland (Greece)
Spain…..
∗ Whether the financial rescue program will
stabilize Greece & the Euro-Zone.
∗ Will Greece require more Financial Aid ?
∗
 Thank you
This is not the end “ . “
The financial market has put Euro Zone to work
on for “ Sustainable Solutions…………………