GREEK CRISIS

Presented By-
Group 8
FISCAL PROBLEM
Employee compensation This has roots in the political
costs grew too high situation. Leaders spent more
on free schemes to remain in
Pension counts absorbed power
12% of GDP
Common Monetary policy but
High tax evasion affected different fiscal policy across
government revenue nations
High fiscal deficit numbers Poor check on tax evasion and
disguised in the official data high corruption
Military Expenditure Large presence of
microenterprises
 STRUCTURAL PROBLEMS
Ease of doing World Banks report Greece 109/183 in
business 2010
Hourly productivity was 44% lower than
Low productivity the Euro-region
Unit labour cost increased by 40% over
High labour cost
the decade compared to 16% of
Low R&D spending Germany
R&D was less than 3rd of the EU
Restrictive labour average
policies Restrictions on temporary employment
and working our limits
Political Issues:

Parliamentary monarchy post Independence was highly unstable

Between 1909 and 1940: 4 Kings, 38 governments and 20 Prime
Ministers

Bribery and embezzlement became endemic

Cost to Greek Government was 8% of GDP

Efforts to buy political support caused over-staffing

Weak statistical office

Official data disguised the size of fiscal deficits

Tax evasion
National Income >20,000 per person, but 2/3rd of workers
declared income less than 12,000
TRADE PROBLEMS
Greek Current account deficits averaged 9.5%
from2001-2009
Shipping and Tourism were declining due to
slow global recession
Greece ran a deficit of 10% of GDP as against
5% surplus of Germany
Greek Labor costs rose by 40% as against 16%
in Germany.
Greece Exports declined at a rate of 12%
 Measures Taken

External Measures Internal Measures

The European Union, The IMF and the ECB set up a tripartite
committee called Troika to design the appropriate
measures
In the first phase 45 billion worth of funding (30 billion ECB,
15 billion IMF was passed), its chief aim was to encourage
the private participation to invest and to promote liquidity
to support the Greek banks
In the second phase of crisis response, 110 billion worth of
funding (80 billion Eurozone, 30 billion IMF), this capital is
to be provided in phases stretching for a period of 3 years,
the Greek government was forced to accept the rate of
interest as high as 5% with a period of 5 years to repay the
loan
ECB also bought Government debts from the secondary
markets to increase investor confidence, 78 billion worth of
bonds were bought out of which 45 billion were from Greece
EFSF(European financial stability fund) consists of fund
worth 750 billion, which is made up as follows
440 billion from the Eurozone member states in the form of
loan guarantees
60 billion as emergency funds from the Eurozone itself
250 billion provided as arrangements from the IMF
EU also made a proposal for a single body to responsible for
tax policy and government spending
Austerity Package
3 stage austerity package was launched by the greek
government
Freeze in the salaries of both government and private
sector employees
Bonuses and overtime work cut by 12%
Average retirement age increased to 65 years from 61
years, with equal pension for female and male
The pension limit was set as 2500 Euros with minimum
pension of 800 euros on a monthly basis
Taxes
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%
Sales Tax
VAT rate for restaurants and bars is being hiked from 13% to
the new rate of 23%
Wealth Tax
Tougher luxury levies will be introduced on yachts, cars and
swimming pools, along with higher property taxes
OUTCOMES OF THESE MEASURES
The Austerity package along with the increase in taxes by the greek government
led to widespread discomfort to ordinary masses leading to protests and
demonstration
Only a small fraction of the 240bn (170bn) total bailout money Greece
received in 2010 and 2012 found its way into the governments coffers to soften
the blow of the 2008 financial crash and fund reform programmes
Most of the money went to banks who have bought government securities

Private bondholders saw the value of their bonds drop by 53% and took a further
loss by exchanging the debt for securities with a lower interest rate
48.2bn was used to bail out Greek banks which had been forced to take losses,
weakening their ability to protect themselves and depositors
Less than 10% of the bailout money was left to be used by the government for
reforming its economy and safeguarding weaker members of society
G20 countries have decided to protect the banking system to recapitalize the
exposed banks so that they can absorb losses without getting bankrupt
EFFECT OF CRISIS ON OTHER COUNTRIES
France and Germany were estimated to hold Euro 60 to 120
Billion of Greek Government Bonds
State rescues of banks might well cost more than a loan to
Greece
Fears of default created a spike in Bond Yields in countries like
Portugal,Ireland, Spain and Italy.
Euro had depreciated from a value of $1.50 in October 2009 to
$1.20 by Mid June 2010.
Some Baltic States were less enthusiastic for adopting the Euro
after fears of default news.