Flow of Greece Crisis Introduction of Greece Entry in European Union(EU) Entry in European Economy and Monetary Union(EMU) Reasons of Greece Crisis Impact on European Union Impact on US Impact on India Measures taken Is situation solved or not
Country Profile Entry in EMU Euro as base currency Fraud revealed After Olympics Hosting of Olympics Deficit Rating declined Crisis
Impact on Banks Impact on Greece Effect on Greece stocksImpact on Europe Impact on US Impact on IndiaSituation solved or not Austerity and bail out plan Measures taken
Introduction of Greece Economy Introduction of Greece EconomyPopulation: 11.2 million (UN, 2009)Capital: AthensMajor Language: GreekMajor Religion: ChristianityMonetary unit: 1 euro = 100 centsGNI per capita: US $28,650 (World bank, 2008)Inflation rate: 1.2% (2009)Unemployment rate: 9% (2009)
Introduction of Greece Economy 27th largest GDP in the world agriculture: 3.4% industry: 20.8% services: 75.8% 34th largest at Purchasing Power Parity(PPP) 22nd highest human development Greece is a member of EU, WTO, OECD, BSECO Greece main business is Tourism, Mining, Petroleum, Chemicals, Food Processing, Textile, Metal Products and Tobacco Processing.
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
Entry in European Union(EU) EU formed in 1958 by six countries(Belgium,France,Ita ly,Luxembourg,Netherlands, West Germany) Main object to remove regional disparity, improve economy and and inflate trading. Greece joined EU in 1981
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.
in 2004, Eurostat revealed that Greece understated the budgetary statistics. Eurostat used ESA95 methodology. Country annual gove Long term rnment interest rate Inflation defecit to rate GDP Reference max. 1% max. 3% max. 6% value Greece 2.5 3.4 6.4
Democratic government, Socialist populationWelfare schemesHiring of more Government jobs increase in of Government employees SalaryEvasion of taxHigh taxes witch lead to high tax evasionloosing 30 billion Euros per year36.6% of the gross government revenue
Government spending focussed on consumptionexpenditure 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 expenditureFraudulent Government and Fiscal Indiscipline Accumulated debts Secretly borrowing from Private and foreign investors to hide deficitsBecause of government borrowing supply for the private sector decreased
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.
After Olympic… Athens was questioned on $15 billion expenses by the Greece Government After Olympics stadiums are vacant and not in use
ORIGINS OF GREECES DEBT CRISISBOOM1999-2001 and 2005-07Private debt increases much more than public debtPrivate debt increases spectacularlyBUST 2002-04 and 2008-09.economy is driven into a recessiongovernment revenues declinesocial spending increases.government is forced to issue its own debt to rescue private institutions.
Rising debt levels12.7% of GDP in 2009Rising borrowing costHigh social spending
On 27 April 2010, the Greek debt rating was decreased to BB+ by Standard & Poor Standard & Poors estimates that in the event of default investors would fail to get 30–50% of their money back
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%
Industrial Productiondropping by 11%.Mining fell by 6.4%manufacturingdecreased by 11.3%electricity productiondropped 12.2%
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
Exposure of banks to Greece bonds Name of Banks Holdings BNP Paribas €5 billion Dexia €3.5 billion Generali (Italy) €3 billionCommerzbank (Germany) €2.9
The industrial production is lowIn 2011- unemployment rate gone to 15.9%
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.
Greece Government Bond ownership by region Asia 3% Europe Greece Other USA Asia
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.
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 Indias 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.
What level of debt is sustainable – 60-85% of GDP
First Austerity Package announced on 9th Feb 2010The Greek Parliament votes 155-138 in favor of $40 billion in painful budgetcuts and tax increases over the next few years.Tax IncreasesIncome 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
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 TaxTougher luxury levies will be introduced on yachts, cars and swimming pools, alongwith higher property taxesThe changes should bring €2.32bn this year, rising to €3.38bn in 2012, €152mn in2013 and €699mn in 2014
Spending Cuts Public Sector wages Social benefits and pension Social contribution Public investmentThe austerity programme also states that €7bn will be raised in 2013, €13bn in 2014and €15bn in 2015.
Stakes in various state assets will be placed on the auction block, in an effort toraise €50bn by 2015.2011 Stake in Hellenic Telecom to Deutsche TelecomGreece decided to sell 10% stake in Hellenic telecom which is state ownedto German telecom company Deutsche Telecom for €400m. DeutscheTelekom 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 saleHellenic post bank is a retail bank of greece which owned by HellenicRepublic. It’s a state owned company. Thessaloniki Water Supply AndSewerage Company SA is a Greece owned company that supplies water tothe Thessaloniki urban complex.
2011 Stakes in betting monopoly OPAPOPAP - Greek Organisation of Football Prognostics Two port operators, Piraeus Port and Thessaloniki Port, will also be partiallyPiraeus Port Authority S.A. is a Greece owned company engaged in themanagement and operation of Piraeus port. Thessaloniki Port AuthoritySA is a Greece-based company involved in the management and operationof Thessaloniki port.
2012 Next year, the government plans to sell stakes in Athens Water, refiner Hellenic Petroleum, electricity utility PPC, lender ATE bank. Government also plan to sell ports, airports, motorway concessions, state land and mining rights. It plans further sales to raise 7bn euros in 2013, 13bn euros in 2014 and 15bn euros in 2015.
Introduced new Austerity package on 2 May 2010. Greece andits international lenders have agreed to revise the countrysfive-year austerity plan to include more tax increases and lessspending 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.
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.
In May-2010 IMF and EU proposed a bailout plan for Greece worth EUR 110 bnGreece Bailout Distribution (in bn Euros) 2010 2010 2011 2011 2012 2013 Total (Actual) (revised) 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
Now situation has become critical and Greece debthas increases to 370bn. We consider the three broadoptions open to Greece, the EU and the IMF: norestructuring (essentially an extension of EU/IMFloans), voluntary restructuring and a hardrestructuring event. Our conclusion is that avoluntary restructuring is the most likely outcome.