GREECE DEBT CRISIS

What is Greeks debt crisis?

The Greek government crisis (also known as the Greek depression) started in late 2009. It was the first sovereign debt crisis in the Eurozone later referred to collectively as the European debt crisis.

In 2012, Greece's government had the largest sovereign debt default in history.

On June 30, 2015, Greece became the first developed country to fail to make an IMF loan repayment. At that time, Greece's government had debts of €323bn.

Why did this happen? Government deficit: Huge fiscal imbalances developed during

the five years from 2004 to 2009: "the output increased in nominal terms by 40%, while central government primary expenditures increased by 87% against an increase of only 31% in tax revenues.“

Inefficient Pension System: Greece spent 17.5 percent of its economic output on pension payments, the most in the E.U., according to the most recent Eurostat data from 2012. But with existing cuts, that figure has fallen to 16 percent.

Tax Evasion: The country has struggled to collect taxes from citizens, especially the wealthy, which is a problem when Greece's national debt is 177 percent of its GDP , as of 2014. Greece's far-left government has said it wants to target wealthy tax evaders, but creating a more equitable tax system has been challenging.

Benefits: Government employees have had some of the best worker benefits in Greece. For example, an unmarried daughter used to receive her dead father's pension, Tsoukas said, though that specific practice stopped after the bailout agreement was made in 2010.Some workers received atypical bonuses for showing up to work on time

Early Retirement: In 2013, Greece's retirement age was raised by two years to 67. According to government data, however, the average Greek man retires at 63 and the average woman at 59

High Unemployment and Work Culture Issues: The unemployment rate is 25.6 percent in Greece."It’s kind of endemic and built into that culture that if I don’t get paid, I can’t pay you.”-John Challenger, CEO of global outplacement and executive.

Wall street crash: After the borrowed hosting of Olympics in 2004 Greece expected the gap to be covered over years but the 2008 wall street crash which grew on a global scale affected Greece for a long term harm.

Impact

Unemployment rate Highest since Greece joined Eurozone Around 230 thousand people lost job in year 2015

Consumption fell 8.6%, hence 65,000 Retail stores closed in 2015.Consumption is Greek economy’s driving force, as tourism industry is its primary backbone.

25% increase in homelessness.At the main canteen, 3500 people/day come for food & clothing, compared to 100 people/day 5 years ago

Debt crisis caused political turmoil, 87% said they are unhappy with the quality of their lives.

Political instability: 1. PM George Papandreou quits in Nov 2011. The most recent prime minister

was Alexis Tsipras, who took office on 26 January 2015 and resigned on 20 August of the same year. 

2. Gikas Hardouvelis had left on 27th jan 2015,Yanis Varoufakis the ex finance minister quits on 6th july 2015 and at present it is Euclid Tsakalotos.

3. Private Sector wages cut by 10-20%, Govt. 20-30%

Globally:1. Britain may be in the front line of the euro crisis, but it is not only

country affected.2. The Eurozone is a massive market for business from the united

states, china, India, japan, Russia and the major world economic powers.

3. China has considered lending money to Europe, they are that concerned that the euro may collapse.

How will India be affected?

The whole scenario will have an indirect impact on India. Since India is not directly exposed to Greece in terms of trade ties, it is less likely to affect India. However if the Eurozone is hit by the crisis then probably India will have to bear the consequences as well.

Finance secretary Rajiv Mehrishi said the economic crisis in Greece may triggers capital outflows from India and the government is consulting the RBI to deal with the situation.

PIIGS The countries known collectively as the PIIGS—Portugal, Ireland,

Italy, Greece, and Spain are burdened with increasingly unsustainable levels of public and private debt.

Portugal, Ireland, and Greece have seen their borrowing costs soar to record highs, even after their loss of market access led to bailouts financed by the European Union and the International Monetary Fund. 

SOLUTIONS The international monetary fund (Imf), which was

setup to help countries in economic difficulty, set aside hundreds of billions of dollars for a bailout of some of the Eurozone countries.

The wider world is so keen to see the euro survive-even if that means it has fewer members- for the following reasons.

First Economic Adjustment Programme for Greece (May 2010 – June 2011) The First Economic Adjustment Programme for Greece, initially called

the Economic Adjustment Programme for Greece and usually referred to as the First bailout package or the First Memorandum, is a Memorandum of understanding on financial assistance to the Hellenic Republic in order to cope with the Greek government-debt crisis.

It was signed on 3 May 2010 by the Greek Government under then-prime minister George Papandreou on one hand, and on the other hand by the European Commission on behalf of the Euro group, the European Central Bank (ECB) and the International Monetary Fund (IMF).

Of the totalling €107.3 billion of financial assistance, €72.8 billion were disbursed by March 2012, when the programme was superseded by the Second Economic Adjustment Programme for Greece comprising the undisbursed amounts of the first programme and additional €130 billion for the years 2012–14.

Second Economic Adjustment Programme for Greece (July 2011 – present) The Second Economic Adjustment Programme for Greece, usually referred

to as the Second bailout package or the Second Memorandum, is a Memorandum of understanding on financial assistance to the Hellenic Republic in order to cope with the Greek government-debt crisis.

It was signed on 1 March 2012 by the Greek Government under then-prime minister Lucas Papademos on one hand, and on the other hand by the European Commission on behalf of the Euro group, the European Central Bank (ECB) and the International Monetary Fund (IMF).

The Second bailout package superseded a prior bailout, the First Economic Adjustment Programme for Greece.

 The second bailout package would take the form of an €100bn aid package provided by the newly created European Financial Stability Facility. The repayment period was extended from seven to 15 years and the interest rate was lowered to 3.5%

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