Greece crisis:

Origins and
lessons
 09
Anfal Shaikh
Dimple Dave
Husain Furniturewala 59

Rahul Panchigar Roll No.

Sumangal Rathi

Mupesh Chauhan
 HOW DID IT STARTED
• Greece forged it budget figure in order to be admitted in
Eu

• It was also under-reporting its debt, which had balooned

to 12.7 % of the GDP

• It enjoyed the benefit of its Eu membership

• It wanted to preserve country existing economic structure

• Greek politician did not understand what its like being a

EU member
 GREECE’S TROUBLES
• Greece debt woes came to light late in 2009

• It was also under-reporting its debt, which

had balooned to 12.7 % of the GDP

• Several credit ratings agencies have

downgraded Greece’s credit rating

 POSSIBLE CAUSES OF
THE CRISIS
Domestic Factors
High Government Spending and Weak Government Revenue
• 2001-2007 GDP of grew 4.3% as compared to 3.1%
• High economic growth rate
• Over the past 6 years central government expenditure 87%
vs revenue 31%
• “Absense of the will to maintain fiscal discipline”
• Superior public spending
• Generous pension payment structure
 POSSIBLE CAUSES OF
THE CRISIS
cont…..
Structural Policies and Declining
International
Competitiveness
• High wages less productivity
• Wages in Greece has increase 5% annual
rate
• Greece export grew at 3.8%per year
 POSSIBLE CAUSES OF
THE CRISIS
International factors
Increased Access To Capital At Low Interest Rate
• Greece adoption of the euro as its national currency 2001
Issues with EU Rules Enforcement
• 1992 Maastricht Treaty’s “convergence criteria” for EMU
• Budget deficits not to exceed by 3% of GDP
• Debt not to exceed by 60% of GDP
• 0.5% fine of GDP
• Increasing member of states
 EFFECT ON OTHER
EUROPEAN STATES
• The overall effect of Greece being forced off the
euro, would itself have been small for the other
European economies. Greece represents only 2% of
the eurozone economy

•  The more severe danger is that a default by Greece

will cause investors to lose faith in other Eurozone
countries. This concern is focused on Portugal and
Ireland, all of whom have high debt and deficit
issues. Italy also has a high debt, but its budget
position is better than the European average, and it
is not considered amongst the countries most at risk
 DANGER OF DEFAULT
• Without a bailout agreement, there was a
possibility that Greece would have been forced
to default on some of its debt
• One analyst gave a 80 to 90% chance of a
default or restructuring
•  Martin Feldsten called a Greek default
"inevitable."A default would most likely have
taken the form of a restructuring where Greece
would pay creditors only a portion of what they
were owed, perhaps 50 or 25 percent
 AUSTERITY AND LOAN
AGREEMENT cont….
• On 2 May 2010, a loan agreement was reached
between Greece, the other Eurozone countries, and
the International Monetary Fund

• The deal consists of an immediate €45 billion in

low interest loans to be provided in 2010, with
more funds available later

• A total of €100 billion has been agreed. The

interest for the Eurozone loans is 5%, considered to
be a rather high level for any bailout loan
 AUSTERITY MEASURES
• Return of special tax (LAFKA) on high pensions

• 10% rise in taxes on alcohol, cigarettes, and fuels

• 10% increase in luxury taxes

• Equalisation of men's and women's pension age limits.

• Public-owned companies to diminish from 6,000 to 2,000

• Freeze on increases in public sector wages for three years