Greece Crisis

Presented By :-
Members Roll No. Topic
Mayur Chordia 15 Introduction
Dilip Pandey 66 Greece Overview
Naseem Khan 40 Contribution to world
Mayur Patel 72 Present Crisis
Nitin Parmar 74 Impact on India
Ronak Modi 57 Role of Germany
Abhishek Pathare 71 Bailout
Anup verma 76 Solutions to Crisis

Sandeep Dube 21 Current News

 Trade Blocs

A trade bloc can be defined as a ‘preferential trade

agreement’ (PTA) between a subset of countries,
designed to significantly reduce or remove trade
barriers within member countries.

OR

A trade bloc is a type of intergovernmental agreement,

often part of a regional intergovernmental
organization, where regional barriers to trade (tariffs
and non-tariff barriers) are reduced or eliminated
among the participating states.
 Continued..
 Regional Trade Agreement/Integration Agreement

 Natural Trade Bloc

 Regionalism
Old Regionalism & New Regionalism

“The first waves of PTAs appeared in the 1930s leading to

a fragmentation of the world into trade blocs”
Emergence of Trade Blocs
 Few Trade Blocs in world

(1) In Europe, the European Union (EU)

(2) In United States, the North American

Free Trade Agreement (NAFTA)

(3) In Latin America, the Common Market of the

South (MERCOSUR)

(4) In Asia, the Association of Southeast Nations

(ASEAN)
 Eurozone

The Eurozone-officially the euro area, is an economic

and monetary union (EMU) of 16 European Union (EU)
member states which have adopted the euro currency
as their sole legal tender.

OR

A geographic and economic region that consists of all

the European Union countries that have fully
incorporated the euro as their national currency.
 Continued…

It currently consists of Austria, Belgium, Cyprus,

Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, Malta, the Netherlands, Portugal,
Slovakia, Slovenia and Spain.

 Eight (not including Sweden) other states are

obliged to join the zone once they fulfill the strict
entry criteria.
Emergence of Eurozone
 European Central Bank

The European Central Bank (ECB) is the institution

of the European Union (EU) tasked with administrating
the monetary policy of the 16 EU member states
taking part in the Eurozone.

 It is thus one of the world's most important central

banks.

 The bank was established by the Treaty of

Amsterdam in 1998, and is headquartered in
Frankfurt, Germany.

 The current President of the ECB is Jean-Claude

Trichet.
 Objectives
The primary objective of the ECB is to maintain price stability
within the Eurozone, or in other words to keep inflation low.

The key tasks of the ECB are :-

(1)To define and implement the monetary policy for the

Eurozone

(2)To conduct foreign exchange operations

(3)To take care of the foreign reserves of the European

System of Central Banks

(4) To promote smooth operation of the financial market

infrastructure.
Geographic Location
 Greece is located at the southeast end of

Europe .
 Greece is referred to as a southern European

country, because geographically part of this

region.
 It’s capital city is Athens

 It is famous for its beautiful beaches and sea.

 Greece is 5005.13 Km from New Delhi .

 In Greece, people were considered literate when
they graduate the 6 years of primary school.

 In some other countries literate means someone that

can read and write.

 The literacy rate in Greece is 97.5%.

 In Greece education is free and compulsory for all
children between the ages of 6 and 14.

 The remaining years of secondary school are

optional and also free.

 Greece steadily increases its literacy rate specifically

for youths aged 15-24 years old is higher at 98.94%.
 GDP - real growth rate
-2.5% (2009 est.)
2.9% (2008 est.)
near 4%(2007 est.)
near 4%(2006 est.)
near 4% (2005 est.)
 According to the data given by the International
Monetary Fund for the year 2008:-

 The service sector contributes 75.8% of the Industry

20.8%, Agriculture 3.4% of total GDP.

 The economy of Greece is the twenty-seventh largest

economy in the world by GDP.

 The thirty-third largest by purchasing power

 Greece is the twenty-fourth most globalized
country in the world and is classified as a high
income economy.

 The Greek economy grew by nearly 4.0% per year

between 2003 and 2007

 Rising debt levels (115% of GDP in 2009) lead to

rising borrowing costs, resulting in a severe
economic crisis.
 Budget deficit criterion of no more than 3% of
GDP from 2001 to 2008.

 But the 2009 budget deficit stood at 13.6% of

GDP.
 The Greek maritime fleet is the largest in the world, at
approximately 18% of the worlds maritime fleet.

 Today, shipping is one of the country's most important

industries. It accounts for 4.5% of GDP, employs about
160,000 people (4% of the workforce), and represents
1/3 of the country's trade deficit.

 According to the BTS, the Greek-owned maritime fleet is

today the largest in the world, with 3,079 vessels
accounting for 18% of the world's fleet capacity (making
it the largest of any other country).
 Greece attracts more than 16 million tourists each
year, thus contributing 15% to the nation's Gross
Domestic Product. In 2008, the country welcomed
over 16.5 million tourists. The number of jobs
directly or indirectly related to the tourism sector
were 659,719 and represented 16.5% of the
country's total employment.
 t has been criticised many times for lagging
behind other Western European nations in terms
of tourism infrastructures and amenities
 According to a survey conducted in China in 2005,
Greece was voted as the Chinese people's number
one choice as a tourist destination.
 [4] In November 2006, Austria, like China, announced

that Greece was the favourite tourist destination for

its citizens.
 In line with these observations, Greece's former
Minister of Tourism Aris Spiliotopoulos announced
the opening of a GNTO office in Shanghai until
2010.
EXPORTS
MAJOR EXPORT
PARTNERS
MAJOR IMPORT PARTNERS
Year 2007 2008 2009 2010

Trade Deficit 41499.2 44048.8 30760.4 5542.6

 APRIL APRIL APRIL APRIL
Year
2007 2008 2009 2010

Inflation Rate 2.5 4.4 1 4.8

 MAY MAY MAY MAY
Year
2007 2008 2009 2010

INDEX 4836 4196 2192 1630

 MAY MAY MAY MAY
Year
2007 2008 2009 2010

Rate of increase 4.50 4.75 5.24 12.45

 In early 2010 fears of a sovereign debt crisis
developed concerning some countries in Europe.

 Greece, Ireland ,the United Kingdom, Spain and

Portugal .
 Public debt .

 Greece has 13% of fiscal deficit and 113% of

public debt as percentage of GDP.

 Greek government debt was estimated at €216

billion in January 2010.
1. Income inequality has been growing in Greece.

2. Declining unit labour costs, aimed at increasing

export competitiveness, Greece, among other
European countries like Spain, Portugal and
Ireland, lost out to Germany.

3. There are two portions of government debt —

principal and interest payments.

4. Last but the most important, this would not have

been such a big problem had Greece not been a
part of the EMU.
 If they had an independent currency .

 But as soon as a country becomes a part of a

unified currency under a common Central
Bank, its independent monetary policy
practically disappears, particularly for the
relatively poorer and less powerful countries.
 The global financial crisis that began in 2008 had a
particularly large effect on Greece.

 Two of the country's largest industries are tourism

and shipping, and both were badly affected by the
downturn with revenues falling 15% in 2009.

 To keep within the monetary union guidelines, the

government of Greece has been found to have
consistently deliberately misreported, in other words
falsified, the country's official economic statistics.[
 In the beginning of 2010, it was discovered that
Greece had paid Goldman Sachs and other banks
hundreds of millions of dollars in fees since 2001 for
arranging transactions that hid the actual level of
borrowing.

 The purpose of these deals made by several

subsequent Greek governments was to enable them
to spend beyond their means, while hiding the
actual deficit from the EU overseers.
 Role Of Germany

Germany Holds The Key: -

 With Greece threatened with a default, European

Union leaders have been debating potential rescue deals
for the Greek economy.

 Most EU leaders as well as the governments of most

EU member states, supports bailout package for Greece
to help it survive this debt crisis.
 Continued..

 However, Germany has proven to be highly

reluctant to fund such a bailout, as a majority of
German voters oppose such a move and as the
center German government faces a key state election
in Germany’s largest state in the near future.

 If Germany blocks an EU bailout for Greece, there

be little choice for the Greek government but to turn
to the IMF, a move that will likely be greeted with
hostility in many EU member states, but one that is
acceptable to Germany.
What German Chancellor Mrs. Angela Merkel
says about Bailout

 The German chancellor was said for taking a hard line

against an European bail-out of Greece.

 That was before George Papandreou, the Greek prime

minister, bowed to the inevitable on April 23rd and asked for
the €30 billion ($40 billion) loan pledged by Greece’s euro-
zone partners,

 Of, which Germany’s share is about €8 billion. A further

slice, of perhaps €15 billion, may come from the IMF.
Continued…
 Now, Mrs. Anegla Merkel, Reported politicians’ estimates of the
whole bill have soared to €120 billion and far beyond,
with a correspondingly greater contribution from Germany.

 Many Germans feel they are being forced to choose between

two basic principles of their economic stability and integration
within Europe.

 They also says that German taxpayers would not have to pay
for other members’ mistakes.

 It should not be forgotten that one of the first countries to

break the original eurozone rules on government borrowing was
Germany itself. In fairness though, Germany got itself back in line
— without having to get financial help from other members.
The German Factor in Greece’s Crisis (Part II)
 
 After heated debate, the German government recently approved
a rescue package for Greece.

 Former Irish Prime Minister John Bruton argues that such

assistance should not be portrayed as charity — but as a loan that
is being extended in the rational self-interest of both the lender
and the borrower.

 Germany leaders today approved the country’s share of the

rescue package for debt – laden Greece after a big debate in
which the finance minister told them they had no alternative to
the unpopular measure.

 The lower house of parliament authorize granting as much as

22.4bn Euros in credit over three years.
Continued…
 
 Mr. John Bruton, believed that it was both fair and reasonable
for Germany and others to insist on a long-term and detailed
austerity program from Greece before releasing funds.

 It is true that these measures will depress the Greek economy

in the short term, but that had to happen sooner or later anyway,
and the sooner it is done, the sooner Greece will get back on a
sustainable path.

 France, Italy, Spain and Portugal also approved their share of a

the bailout to keep Greece from imminent default as the 16
leaders from countries using the Euro.
 What is Bailout

A bailout is an act of giving capital to an

entity (a company, a country, or an
individual) in danger of failing in an
attempt to save it from bankruptcy,
insolvency, or total liquidation and ruin;
or to allow a failing entity to fail
gracefully without spreading contagion.
Bailout: -
 
International Monetary Fund(IMF)
approves the bailout package for the
Greece crisis of 250bn Euro.

Eurozone countries approves the bailout

package for the Greece crisis of 440bn
Euro
 What triggered THE RISE?

The Euro 750bn received from Eurozone & IMF

packaged , which rise a rally in stock markets
world wide, forced traders to cover their short
positions, thereby covering their losses.
Impact On
India
Solution to Crisis
 Greece comes out of the European Monetary
Union.

 Greece stays in it but bailing it out in that case

becomes implausible due to various political
forces at work.
 Greek workers could redeem themselves through suffering,
accepting large wage cuts that make Greece competitive enough
to add jobs again.

 The European Central Bank could engage in much more

expansionary policy, among other things buying lots of
government debt, and accepting, indeed welcoming — the
resulting inflation; this would make adjustment in Greece and
other troubled euro-zone nations much easier.

 Greece could become to Athens what Washington is to

Sacramento — that is, fiscally stronger European governments
could offer their weaker neighbors enough aid to make the crisis
bearable.
 None of the alternatives seem politically plausible.

 Drastic wage cuts might not increase the export competitiveness

since German goods could still be preferred to the Greek goods
purely because of their quality.

 Greece would be competing with other nations as well for the

external markets

 Decreasing wages also means a declining domestic market.

Therefore, it is very likely that the marginal increase in exports
would be overweighed by the decline in domestic consumption.
 Based on an unsubstantiated belief that a higher
money stock automatically leads to inflation
since "more money chases the same goods".

 Greece has idle capacity and unemployment,

European Central Bank's money would chase an
increased amount of goods instead of the same
goods, thereby, avoiding inflation.
 Berlin and EMU, along with the IMF, are coming to the
rescue of Greece by announcing the bailout package, it is
coming with strings attached.

 It might force the Greek government to decrease its deficit in

its immediate future and balance its budget in the long run.

 Budget deficit can be decreased through increasing tax rates

or by decreasing government expenditure or both.
 Without accepting the IMF's deflationary and extremely
painful path to recovery. The answer lies in what IMF
does not want Greece to do
i.e. increase tax rates. The Greek government could decide
to increase the direct tax rates while maintaining its
expenditure on job-creating activities. This would have a
dual effect. It would increase the growth rate and at the
same time decrease the debt burden of the government
by increasing the tax revenues for the same expenditure.
 Instead of joining the rat race for export
competitievness which leads to declining wage
share, they should concentrate on domestic
sources of growth. One of the primary sources is
the wage growth which Increases the domestic
consumption.

 Above path, however, would require Greece to

gradually break away from the EMU and have
strict capital controls.
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