The Greek Financial Crisis: An International Financial Analysis

November 12, 2013Anson Zong-Liscum, Tyler Rigg,

Ruben Young

The Greek Financial Crisis: The Past

The Facts of the Past: Joined the EU in 1991 Old Currency: The Dharma Population: 11.2 mil Major Industries: Tourism & Shipping

Reasons of Joining EU Access to a competitive market Solidarity (Euro connection) Stability Efficiency

The Greek Financial Crisis:

http://www.youtube.com/watch?v=7inY3k8y4d0

The Greek Financial Crisis: The Past

Initial Success in Euro Switch Increase wages, Early retirement, High pensions, Low interest rates, Foreign investment

Maastricht Treaty Obligations: Debt Limit Max. 60% GDP (113% in 2009) Annual Deficit Max. 3% GDP (14% in 2009)

Reveals 300 bil. debt. Highest in modern history (2009)

The Greek Financial Crisis: The Past

The Greek Financial Crisis: The Past

Major Crisis Factors: Mismanagement of

Funds Inefficient Public

Structure Trade Imbalances Govt. & Upper Class

Corruption Tax Evasion (25-30

bil. Euros)

The Greek Financial Crisis: The Present

2010; Greek Gov’t Bonds become “Junk”, Can not privately finance

on 2 May, the Eurozone countries and the International Monetary Fund (IMF) presented a €110 billion bailout loan for Greece. It was based around 3 key points:1. Implementation of austerity measures.2. Privatization of government assets worth €50bn by the end of 20153. Structural reforms, to enhance competitiveness.

What is Austerity? Austerity is a government method of covenants with the

goal of re-stabilzing its debt deficit. Examples: Lowered Spending Increased Tax

Results of 2010 bail out Record increase in unemployment Abolishment of the trust between the Greek people and the Gov’t. Greek economic conditions worsened

2011-2012; Bail Out #2 Further implementation of Austerity conditions All holders of Greek gov’t bonds had to agree to incur a 53% loss

(extremely unpopular) €130 billion Troika  (EU, ECB, IMF) monitor all loans to Greece

Greece to resume using the private capital markets for debt refinance and as a source to partly cover its future financial needs

2013; Speculation of a 3rd Bailout Rumored that Greece still needs €50 billion from 2015-2020

The Greek Financial Crisis: The Present

The Greek Financial Crisis: The Present

Fun FactsRumors of hypocrisy, national self interest

conspiring of EU nations trying to take advantage of Greece 

Huge protests from Greek people who feel they are being cheated by lenders and are at war with them.

Greece has lost 40% of its disposable income since crisis began

Greek stock market has dropped 85% in less than 4 years

The Greek Financial Crisis: The Present

Greek currently 160% of GDP, 120% by 2020 (goal)

Unemployment sitting near 30% Wages last two years have fallen 12% More than 1.1m jobs lost in the private sector in

the past four yearsMarket rigidities in Greece, including state

monopolies, price-fixing by local producers and restricted shopping hours, keep prices of goods higher than elsewhere in the eurozone. 

The Greek Financial Crisis: The Future

What would happen if Greece left the Eurozone? Greece would have the ability to print currency Could cause other countries to follow Greece out

of the Eurozone Greece’s absence would cause a decrease in

value in the Euro Would face minimal austerity measures

The Greek Financial Crisis: The Future

If Greece stays in the Eurozone and accepts additional bailouts… Greek bank would continue to take losses and

continue to take on more debt Austerity measures could be unproductive

because of high unemployment rates Private sector will continue to struggle

The Greek Financial Crisis: The Future

The Greek Financial Crisis: The Future

What needs to be done? Tax structure reform (Lagarde List) Business regulatory reform

Less regulation to encourage competition Continue to make efforts to increase tourism Restore faith in the government

QuestionsDo you believe Greece should leave the Euro

zone or stay within it?What do you believe Greece should do to

rebuild their economy and to restore faith in the government?

Will they make a full recovery?