Greece attracts more than 16 million tourists each year, thus contributing between 18.2% to the nation's GDP in 2008 according to an OECD report.
Reasonsexplaination from Greece crisis ppt by YogeshShinde slide no : 11
Low spendings affected tourism sector Negative impact on exports and international sea transport
Greece Crisis and its Impact Presented by: SumitTamrakar BhartiVidyapeeth’s Institute of management &Information Technology,Mumbai
Contents Introduction to Greece Economy. Reasons for Greece Crisis. Impact of US Sub Prime crisis on Greece. Impact on Major European Economies. Impact on India. Measures taken by ECB, IMF ,ESM, EFSF to overcome crisis. Current News. Conclusion.
Introduction to Greece Economy 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
Reasons for Greece Crisis 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 :
Impact of US Sub-Prime Crisis on Greece 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.
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 markets were highly liquid.
Greek economy - significant problems: Government expenditures increased by 87%, revenues grew by only 31%. Rising Unemployment. Insufficient Bureaucracy. Tax Evasion. Corruption.
Impact of Crisis: South-eastern Europe:Greece’s foreign policy focus on the region and growing trade volumes between the countries, neighbouring Serbia, Albania, Macedonia, Romania, Bulgaria and Turkey cannot remain indifferent to the magnitude of the crisis next door.
Exposure to Greece Direct exposure of U.S. banks to the Greek government is relatively small. Direct U.S. exposure to Greece more generally includes the Greek government and the Greek private sector. The BIS defines “other potential exposures” as derivative contracts, guarantees, and credit commitments.
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 Greek’s private banks [b/w Jan 2010 to May 2011– €51 billion. Again Euro zone provided loan - July 2011 € 109 billion.
Measures 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.
Measures 6. EFSF(European Financial Stability Fund ) : The EFSF is intended to consist of a fund of €750 billion, which would be made up as follows: (a) €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.
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)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.
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.
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 totaling €1,000 a year were 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.
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 in debt-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.
Current News 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.