Greece Crises

Priyadarshani Sonawane Javed Khan

Table of Content
Introduction Why happened What happened Impact on India Impact on World Bail out plans Situation solved or not.

Introduction
Economy GDP (2010 forecast): 236 billion (about $315 billion). Per capita GDP (2009 estimated): $30,035. Growth rate (2010 forecast): -4.00%. Inflation rate (2010 forecast): 4.6%. Unemployment rate (annual average, 2010 forecast): 11.8%.

Agriculture (5.4% of GDP) Manufacturing (21.3% of GDP) Services (73.3% of GDP) Trade: Exports (2009 estimated)-$21.37 billion Romania. Imports (2009 estimated)-$64.27 billion

Why Happened
Greece adopted the euro () as its currency in January 2002 Budget deficit was likely to be 12.7% of GDP (3 times more than estimated figure) Financial crises, governments uncontrollable spending Its GDP growth rate shrunk by 2.5% in 2009 due to falling tax revenues and consumer spending.

BOOM

The boom years were 1999-2001 and 200507; the bust years were 2002-04 and 200809. One observes a number of remarkable patterns. First, private debt increases much more than public debt throughout the whole period

Second, during boom years private debt increases spectacularly

BUST
First, as the economy is driven into a recession, government revenues decline and social spending increases. Second as part of the private debt is implicitly guaranteed by the government (bank debt in particular) the government is forced to issue its own debt to rescue private institutions.

What Happened

On 27 April 2010, the Greek debt rating was decreased to BB+ (a 'junk' status) by Standard & Poor

The yield of the Greek two-year bond reached 15.3% in the secondary market

Between 2001-2008, Greece reported budget deficits averaged 5% per year, compared to Eurozone average of 2%. Also, its current account deficits averaged to 9% per year compared to Eurozone average of 1% Greece funded these twin deficits by borrowing in international capital markets, leaving it with chronically high

Unemployment: 9.4% in 2009 (from 7.7% in 2008) 11.8% in 2010 14.6% in 2011

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.

Impact on World

PIIGS: Greece has spread the risk to other weak and indebted Euro-area economies.

Bigger impact on South East Europe

Impact on US

Bail Out Plans

Austerity packages Euro zone leaders and the IMF agree to provide financial safety net. April-euro zone finance ministers approve 30 billion May 2-The aid package amounts to 110 billion over three years. May 10-the rescue loans, with 5.5 billion being provided immediately.

 Global policymakers install emergency financial safety net worth about $1 trillion to bolster financial markets and prevent Greek crisis from destroying the euro 440 billion guarantees from euro zone states (Germany: 123 billion) 60 billion European debt instrument 250 billion from IMF

Situation solved or not

Greek debt markets have reacted favourably since the second bailout package was announced. Indeed, our analysis suggests that it would not be credible to consider the Greek debt crisis solved just yet

Thank you