Project on Greece Crisis and Impact for Economic Environment of Business

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: Project on Greece Crisis and Impact for Economic Environment of Business
• financial crisis of 2007–2008
• Greek government-debt crisis
• Causes for deteriorated economic
• Tax evasion and corruption
• Unsustainable and accelerating debt-to-GDP ratios
• Impact of the Greece Economic Crisis on India
India’s Crisis Responses and Challenges

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Project on Greece Crisis and Impact for Economic Environment of Business

  1. 1. Crisis and Impact Renzil D’cruz http://RenzilDe.com http://about.me/renzilde http://linkedin.com/in/renzilde
  2. 2.  Introduction financial crisis of 2007–2008 Greek government-debt crisis Causes for deteriorated economic Tax evasion and corruption Unsustainable and accelerating debt-to-GDP ratios Impact of the Greece Economic Crisis on India India’s Crisis Responses and Challenges
  3. 3. How Crisis Started? Country Profile Fraud revealed Deficit Entry in EMU After Olympics Rating declined Euro as base currency Hosting of Olympics Crisis
  4. 4. Impact of Crisis! Impact on Banks Impact on Europe Situation solved or not Impact on Greece Effect on Greece stocks Impact on US Impact on India Austerity and bail out plan Measures taken
  5. 5. Introduction of Greece Economy Population: 11.2 million (UN, 2009) Capital: Athens Major Language: Greek Major Religion: Christianity Monetary unit: 1 euro = 100 cents GNI per capita: US $28,650 (World Bank,2008) Inflation rate: 1.2% (2009) Unemployment rate: 9% (2009) Greece is the 15th largest economy in the 27 member EU Greece is ranked 29th in the world at $27,875 nominal GDP 33rd in the world $27,624 for purchasing power parity(PPP) Greece is a member of EU, WTO, OECD, BSECO
  6. 6. Introduction of Greece Economy • Greece has Democratic Government. • Current Ruling party of Greece is PASOK(Pan Hellenic Socialist Kleptocrats). • Current Prime Minister of Greece is George Papandreou. • Current finance minister George Papaconstantinou
  7. 7. Industry Contribution to GDP GDP service sector 80% industry 12% agriculture 5% Greece main business is Tourism, Mining, Petroleum, Chemicals, Food Processing, Textile, Metal Products and Tobacco Processing.
  8. 8. Government budget deficit, inflation, GDP growth and debt-to-GDP ratio (1970–2015) Source: Eurostat and European Commission Greek national account Public expenditure4 (% of GDP) Structural deficit5 (% of GDP) GDP deflator6 (annua l %) Real GDP growth7 (%) Public 8 (billion €) debt Nominal GDP8 (billion €) Debt-to-GDP ratio (%) - Impact of Nominal GDP growth (%) - Stock-flow adjustment (%) - Impact of budget deficit (%) - Overall yearly ratio change (%) 2006 2007 2008 2009 2010 2011 20122 20132 20142 45.0 47.2 50.5 54.0 51.3 51.7 50.7 49.6 48.1 6.8 7.9 9.6 14.7 8.7 5.4 1.5 -0.7 -0.4 2.4 3.3 4.7 2.3 1.1 1.0 -0.5 -1.2 -0.4 5.5 3.5 −0.2 −3.1 −4.9 −7.1 −6.0 -4.2 0.6 224.2 239.3 263.3 299.7 329.5 355.7 344.6 347.6 349.3 208.6 223.2 233.2 231.1 222.2 208.5 195.0 184.5 185.0 107.5 -7.6 8.1 5.7 6.3 107.2 -7.0 0.3 6.5 -0.3 112.9 -4.6 0.5 9.8 5.7 129.7 1.0 0.1 15.6 16.8 148.3 5.2 2.7 10.7 18.6 170.6 9.7 3.1 9.4 22.3 176.7 11.8 -12.5 6.8 6.1 188.4 10.1 -3.8 5.5 11.7 188.9 -0.5 -3.6 4.6 0.5
  9. 9. Entry in European Union(EU) • EU formed in 1958 by six countries(Belgium,France,Ital y,Luxembourg,Netherlands,W est Germany) • Main object to remove regional disparity, improve economy and and inflate trading. • Greece joined EU in 1981
  10. 10. Entry in European Economy and Monetary Union(EMU)  Greece entered in EMU in 2001.  Switch dratchma and adopted Euro currency.  Single market through a standardized system of laws which apply in all member states.
  11. 11. Financial crisis of 2007–2008 : • the worst financial crisis since the Great Depression of the 1930s • threat of total collapse of large financial institutions • the bailout of banks by national governments • downturns in stock markets around the world • housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. Renzil D’cruz http://RenzilDe.com http://about.me/renzilde http://linkedin.com/in/renzilde
  12. 12. Result in fall of long term interest rates
  13. 13. Fall in annual GDP
  14. 14. Greek government-debt crisis: • GDP growth rates • Government deficit • Government debt-level • Budget compliance • Statistical credibility Renzil D’cruz http://RenzilDe.com http://about.me/renzilde http://linkedin.com/in/renzilde
  15. 15. • in 2004, Eurostat revealed that Greece understated the budgetary statistics. • Eurostat used ESA95 methodology. Inflation rate annual gover nment defecit to GDP Long term interest rate Reference value max. 1% max. 3% max. 6% Greece 2.5 3.4 6.4 Country Renzil D’cruz http://RenzilDe.com http://about.me/renzilde http://linkedin.com/in/renzilde
  16. 16. Reasons of internal Greece Crisis Democratic government, Socialist population Welfare schemes Hiring of more Government jobs  increase in of Government employees Salary Evasion of tax High taxes witch lead to high tax evasion loosing 30 billion Euros per year 36.6% of the gross government revenue
  17. 17. Reasons of Greece Crisis Government spending focussed on consumption expenditure  Greek government expenditure approximately 104 billion Euros which is equal to 49% of the GDP  Large spending on Interest payment  20% of government revenues diverted into long term investment expenditure Fraudulent Government and Fiscal Indiscipline  Accumulated debts  Secretly borrowing from Private and foreign investors to hide deficits Because of government borrowing supply for the private sector decreased
  18. 18. Hosting the 2004 Olympics • many factors were behind the crippling debt crisis, the 2004 Summer Olympics in Athens has drawn particular attention. • The 2004 Athens Olympics cost nearly $11 billion • The tab for security alone was more than $1.2 billion.
  19. 19. After Olympic… • Athens was questioned on $15 billion expenses by the Greece Government • After Olympics stadiums are vacant and not in use
  20. 20. ORIGINS OF GREECE'S DEBT CRISIS BOOM 1999-2001 and 2005-07 Private debt increases much more than public debt Private debt increases spectacularly BUST 2002-04 and 2008-09. economy is driven into a recession government revenues decline social spending increases. government is forced to issue its own debt to rescue private institutions.
  21. 21. Rising debt levels 12.7% of GDP in 2009 Rising borrowing cost High social spending
  22. 22.  On 27 April 2010, the Greek debt rating was decreased to BB+ by Standard & Poor  Standard & Poor's estimates that in the event of default investors would fail to get 30–50% of their money back
  23. 23. Effects of declined rating  Stock market and Euro currency declined  The euro declined by 1.6 % to $1.3175  The dollar jumped 1% on a trade-weighted basis on haven flows  The yield of the Greek two-year bond reached 15.3%
  24. 24. Industrial Production dropping by 11%. Mining fell by 6.4% manufacturing decreased by 11.3% electricity production dropped 12.2%
  25. 25. Greek banking sector is also in trouble • Banks stocks were the worst affected because of crises • Decline in bank stock prices by 47% since November 2009 • Greek bank deposits have fallen to 8.4 billion Euros
  26. 26. Exposure of banks to Greece bonds Name of Banks BNP Paribas Holdings €5 billion Dexia Generali (Italy) €3.5 billion €3 billion Commerzbank (Germany) €2.9
  27. 27. Greek banking sector is also in trouble
  28. 28. The industrial production is low In 2011- unemployment rate gone to 15.9%
  29. 29. Impact on European Union  The crisis has reduced confidence in other European economies  Financing needs for the euro zone in 2010 come to a total of €1.6 trillion  Ireland, with a government deficit in 2010 of 32.4% of GDP, Spain with 9.2%, and Portugal at 9.1% are most at risk.
  30. 30. Greece Government Bond ownership by region Asia 3% Europe Greece Other USA Asia
  31. 31. Impact on US  U.S. exports to the EU could be impacted if the crisis slows growth In the EU and causes the euro to depreciate against the dollar.  As the crisis continues, increased perceptions of risk are impacting U.S financial markets.  CDT DOW dropped more than 992 points.  The panic in Greece caused one of the most turbulent days ever on Wall Street. In a matter of minutes, stocks plunged 900 points.  The Dow managed to recover but still ended in negative territory, The Dow closed down 347 points.
  32. 32. Impact on India  Greek imports from India include cotton, synthetic fibres, fabrics, vehicles, iron, steel and fruit.  while Greek exports to India include fibres, fertilizers, organic chemicals, pharmaceutical products, leather goods, metal processing machinery, etc.  Only 0.05% of India's exports go to Greece and Indian banks have virtually no direct exposure to Greece.  There will be some additional capital flows coming in in search of a safe haven and a small drop in exports.  Euro which was quoting at around Rs.67 before crisis is way below at Rs.55.92 currently.
  33. 33. Measures Taken Internal Measures  Austerity Package  Privatization External Measures  Bailout Package
  34. 34. Internal measures Austerity Package First Austerity Package announced on 9th Feb 2010 The Greek Parliament votes 155-138 in favor of $40 billion in painful budget cuts and tax increases over the next few years. Tax Increases Income Tax  People will now pay tax on income over €8,000 a year, down from €12,000  This basic rate of tax will be set at 10%  1% for earning between €12,000 (£10,800) and €20,000 a year  2% for earning between €20,000 and €50,000  3% for earning between €50,000 to €100,000  4% for earning €100,000 or more  Lawmakers and public office holders will pay a 5% rate
  35. 35. Internal measures Sales Tax  VAT rate for restaurants and bars is being hiked from 13% to the new rate of 23%  This rate already covers many products in the shops, including clothing, alcohol, electronics goods and some professional services. Wealth Tax Tougher luxury levies will be introduced on yachts, cars and swimming pools, along with higher property taxes The changes should bring €2.32bn this year, rising to €3.38bn in 2012, €152mn in 2013 and €699mn in 2014 Spending Cuts  Public Sector wages  Social benefits and pension  Social contribution  Public investment The austerity programe also states that €7bn will be raised in 2013, €13bn in 2014 and €15bn in 2015.
  36. 36. Privatization Stakes in various state assets will be placed on the auction block, in an effort to raise €50bn by 2015. 2011  Stake in Hellenic Telecom to Deutsche Telecom Greece decided to sell 10% stake in Hellenic telecom which is state owned to German telecom company Deutsche Telecom for €400m. Deutsche Telekom already owns a 30 percent stake in O.T.E. that it bought in 2008.  Hellenic Post bank and Thessaloniki Water are also scheduled for sale Hellenic post bank is a retail bank of greece which owned by Hellenic Republic. It’s a state owned company. Thessaloniki Water Supply And Sewerage Company SA is a Greece owned company that supplies water to the Thessaloniki urban complex.
  37. 37. Privatization 2011  Stakes in betting monopoly OPAP OPAP - Greek Organisation of Football Prognostics  Two port operators, Piraeus Port and Thessaloniki Port, will also be partially Piraeus Port Authority S.A. is a Greece owned company engaged in the management and operation of Piraeus port. Thessaloniki Port Authority SA is a Greece-based company involved in the management and operation of Thessaloniki port. Renzil D’cruz http://RenzilDe.com http://about.me/renzilde http://linkedin.com/in/renzilde
  38. 38. Revised Austerity Package Introduced new Austerity package on 2 May 2010. Greece and its international lenders have agreed to revise the country's five-year austerity plan to include more tax increases and less spending cuts.  The revised 2011-2015 fiscal plan is the key to unlocking further EU-IMF loans for the debt-laden country.  It includes a total €28.4bn (£25.3bn) of fiscal measures, €155m more than in an initial version of the plan.  The revised plan foresees a total €14.32bn of spending cuts, about €490m less than in the previous version. It also calls for €14.09bn of tax measures, €649m more than in the initial version.
  39. 39. Austerity Package Tax increases  Taxes will increase by €2.32bn this year, with additional taxes of €3.38bn euros in 2012, €152m in 2013 and €699m in 2014. Cutting public sector wage  By €770m in 2011, and €600m in 2012, €448m in 2013, €300m in 2014 and €71m in 2015. Cuts in social benefits  By €1.09bn this year, €1.28bn in 2012, €1.03bn in 2013, €1.01bn in 2014 and €700m in 2015. Renzil D’cruz http://RenzilDe.com http://about.me/renzilde http://linkedin.com/in/renzilde
  40. 40. External Measure In May-2010 IMF and EU proposed a bailout plan for Greece worth EUR 110 bn Greece Bailout Distribution (in bn Euros) 2010 2010 (Actual) 2011 2011 (revised) 2012 2013 Total IMF 10.4 10.4 13.3 10.8 8 5.8 30 EU 27.6 21.1 26.7 35.6 16 2.2 80 Total 38 31.5 40 46.4 24 8 110
  41. 41. Situation Solved or not Now situation has become critical and Greece debt has increases to 370bn. We consider the three broad options open to Greece, the EU and the IMF: no restructuring (essentially an extension of EU/IMF loans), voluntary restructuring and a hard restructuring event. Our conclusion is that a voluntary restructuring is the most likely outcome.
  42. 42. Thank You. • Questions ??? • Comments #@$% • Concerns !!! facebook.com/renzilde twitter.com/renzilde linkedin.com/in/renzilde

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