REPORT TO NEPHEW

The economy of Greece is the 27th largest economy in the world by gross domestic product & thirty third largest by purchasing power parity according to the data given by International Monetary Fund in 2008. But amidst this suddenly you could see news flashing everywhere about the Greece being declared bankrupt & its efforts to cope up with this problem. Now you wonder what is this crisis all about? In other words we can say that Greece had continuously borrowed funds from other countries exceeding its repaying capacity. In the beginning of 2010, it was discovered that since 2001 Greece had paid Goldman Sachs & other banks hundreds of millions of dollars in fees for arranging transactions that will hide the actual level of borrowing. Also, they made unrestrained expenses, provided cheap lending, were unable to recover taxes from its citizens & overspent on state pension plans. The main factor for the crisis is the high number of residents who purposely avoid tax, particularly the wealthy, starving the government of the cash that it needs to provide a sufficient level of public service. Another notable factor is the Greek tendency to be a little over generous with the state pension provisions to the elderly which although is a pleasant gesture in principle, left a large ongoing liability to the taxpayer. The ongoing struggle for the Greek government to balance the books only came to light when the boom stopped amidst the global financial crisis. Suddenly unemployment rose sharply, thus there were less people paying taxes and the government was left with a significant shortfall. This left the government struggling not only to pay for public services but also to pay for the loan interest on existing debts. When external investors identified problem with Greek public finances they significantly increased interest rates on loans, mainly through fear of a collapse. Greece subsequently began to default on payments against the increasing debts, resulting into their credit rating being downgraded. The result was interest rates being pushed even higher and the countrys International borrowing facility was suspended within a matter of days. Now the question arises as to how Greece can overcome this situation. Like a hard-pressed individual, Greece has passed the hat round to friends and family in the hope that they will help. In particular, it wants the German relatives to do what they have done during every other European crisis of the past half century write a big cheque to make the problem go away. In fact Germany along with other European countries and IMF is trying to bail out Greece out of this situation by extending some rescue packages in the form of financial assistance. There are measures suggested by European nations to cope up with this problem which include cut on public expenditure to pay debts, control the speculators, reduce imports & increase exports, reduce the wages & salaries, reduce other benefits such as pension, social

security and increase taxes like VAT. The Greece crisis in short has taught a lesson to all other countries about how spendthrift attitude would deteriorate countrys financial condition.

REPORT TO MD The Greece a developed economy with the 22nd highest standard of living in the world has recently declared itself bankrupt. This was sudden shock to the countries, investors world over and made many business analysts to find out the reason behind such a drastic change. The Greece Debt Crisis is currently one of the greatest fiscal challenges facing the Western world today. How did it reach the point of near-disaster? The story began in 2000, when the sovereign nation of Greece, with one of the fastestgrowing economies in Europe- expanding 4.2% per year, joined the Eurozone and adopted the Euro as its currency. Greece was already saddled with a debt over 100% of GDP, mainly from financing expensive social programs and public sector jobs. Greece under-reported its budget deficit at 3.4% of GDP in 1999 in order to join the Eurozone, and throughout the 2000-2007 period it continued to borrow, taking advantage of low-interest bonds thanks to the adoption of the Euro. In 2007 the world economy began a steep recession, one that especially affected the Greek economy, hurting Greeces largest industries: tourism and shipping. Greece continued to misreport and massage its quantitative debt and deficit statistics in order to facilitate continued borrowing. Goldman Sachs, among other financial institutions, was paid hundreds of millions of dollars in order to carry out the transactions that would cover the actual extent of Greek debt. The masking of the debt couldnt last indefinitely and the house of cards would have to come down sometime. Years of unrestrained spending, cheap lending and failure to implement financial reforms left Greece badly exposed when the global economic downturn struck. This whisked away a curtain of partly fiddled statistics to reveal debt levels and deficits that exceeded limits set by the eurozone. This led to Greece's credit rating downgraded to the lowest in the eurozone. This leaves the country struggling to pay its bills as interest rates on existing debts rise. The Greek government of Prime Minister George Papandreou, which inherited much of the financial burden when it took office late last year, has already scrapped most of its pre-election promises and must implement harsh and unpopular spending cuts. Greece is already in major breach of eurozone rules on deficit management and with the financial markets betting the country will default on its debts, this reflects badly on the credibility of the euro. There are also fears that financial doubts will infect other nations at the low end of Europe's economic scale, with Portugal and the Republic of Ireland coming under scrutiny. The government has adopted certain measures such as slashing away at spending and has implemented austerity measures aimed at reducing the deficit by more than 10 billion ($13.7 billion). It has hiked taxes on fuel, tobacco and alcohol, raised the retirement age by two years, imposed public sector pay cuts and applied tough new tax evasion regulations.

Predictably, these moves were not welcomed by the Greeks and there have been warnings of resistance from various sectors of society. Workers nationwide have staged strikes closing airports, government offices, courts and schools. This industrial action is expected to continue until a strong action is taken by the Greece government to overcome this situation.