GREECE CRISIS

Presented By:Rohit Tiwari 15

Priyadarshani 14

Javed khan 07

INDEX Flow of Greece Crisis Introduction of Greece Entry in European Union(EU) Entry in European Economy and Monetary Union(EMU) Reasons of Greece Crisis Impact on European Union Impact on US Impact on India Measures taken Is situation solved or not

Flow of Crisis

Country Profile Entry in EMU Euro as base currency

Fraud revealed Hosting of OlympicsAfter Olympics

Deficit Rating declined Crisis

Flow of Crisis

Effect on Greece stocks

Impact on Greece

Impact on Banks

Impact on Europe Impact on US Impact on India

Measures taken

Austerity and bail out plan

Situation solved or not

Introduction of Greece EconomyIntroduction of Greece Economy

Population: 11.2 million (UN, 2009)

Capital: Athens

Major Language: Greek

Major Religion: Christianity

Monetary unit: 1 euro = 100 cents

GNI per capita: US $28,650 (World bank, 2008)

Inflation rate: 1.2% (2009)

Unemployment rate: 9% (2009)

Introduction of Greece Economy

27th largest GDP in the world  agriculture: 3.4% industry: 20.8% services: 75.8%

34th largest at Purchasing Power Parity(PPP)

22nd highest human developmentGreece is a member of EU, WTO,

OECD, BSECOGreece main business is Tourism,

Mining, Petroleum, Chemicals, Food Processing, Textile, Metal Products and Tobacco Processing.

Introduction of Greece Economy

Greece has Democratic Government.Current Ruling party of Greece is

PASOK(Pan Hellenic Socialist Kleptocrats).

Current Prime Minister of Greece is George Papandreou.

Current finance minister George Papaconstantinou

Entry in European Union(EU)

EU formed in 1958 by six countries(Belgium,France,Italy,Luxembourg,Netherlands,West Germany)

Main object to remove regional disparity, improve economy and and inflate trading.

Greece joined EU in 1981

Entry in European Economy and Monetary Union(EMU)

Greece entered in EMU in 2001.

Switch dratchma and adopted Euro currency.

Single market through a standardized system of laws which apply in all member states.

 in 2004, Eurostat revealed that Greece understated the budgetary statistics.

Eurostat used ESA95 methodology.

Fraud revealed

Country

Inflation rate

annual government defecit to GDP

Long term interest rate

Reference value

max. 1% max. 3% max. 6%

Greece 2.5 3.4 6.4

Democratic government, Socialist population

Welfare schemesHiring of more Government jobs increase in of Government employees Salary

Evasion of tax

High taxes witch lead to high tax evasionloosing 30 billion Euros per year 36.6% of the gross government revenue

Reasons of Greece Crisis

Government spending focussed on consumption expenditure Greek government expenditure approximately 104 billion Euros which is equal to 49% of the GDP Large spending on Interest payment 20% of government revenues diverted into long term investment expenditure

Fraudulent Government and Fiscal Indiscipline Accumulated debts Secretly borrowing from Private and foreign investors to hide deficitsBecause of government borrowing supply for the private sector decreased

Reasons of Greece Crisis

Hosting the 2004 Olympics

many factors were behind the crippling debt crisis, the 2004 Summer Olympics in Athens has drawn particular attention.

The 2004 Athens Olympics cost nearly $11 billion

The tab for security alone was more than $1.2 billion.

After Olympic…

Athens was questioned on $15 billion expenses by the Greece Government

After Olympics stadiums are vacant and not in use

ORIGINS OF GREECE'S DEBT CRISISBOOM1999-2001 and 2005-07Private debt increases much more than public debt Private debt increases spectacularly

BUST 2002-04 and 2008-09.economy is driven into a recessiongovernment revenues declinesocial spending increases.government is forced to issue its own debt to rescue private institutions.

GREEK BUDGET DEFICIT

Rising debt levels 12.7% of GDP in 2009

Rising borrowing cost

High social spending

RATING DECLINE

On 27 April 2010, the Greek debt rating was decreased to BB+ by Standard & Poor

Standard & Poor's estimates that in the event of default investors would fail to get 30–50% of their money back

Effects of declined rating

Stock market and Euro currency declined

The euro declined by 1.6 % to $1.3175

The dollar jumped 1% on a trade-weighted basis on haven flows

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

Industrial production gone down

 Industrial Production dropping by 11%.

Mining fell by 6.4%

manufacturing decreased by 11.3%

electricity production dropped 12.2%

Greek banking sector is also in trouble

Banks stocks were the worst affected because of crises

Decline in bank stock prices by 47% since November 2009

Greek bank deposits have fallen to 8.4 billion Euros

Exposure of banks to Greece bonds

Name of Banks Holdings

BNP Paribas   €5 billion

 Dexia  €3.5 billion

 Generali (Italy)  €3 billion

 Commerzbank (Germany) €2.9

Greek banking sector is also in trouble

Unemployment increasedThe industrial production is low

In 2011- unemployment rate gone to 15.9%

IMPACT ON EUROPEAN UNION

The crisis has reduced confidence in other European economies

Financing needs for the euro zone in 2010 come to a total of €1.6 trillion

  Ireland, with a government deficit in 2010 of 32.4% of GDP, Spain with 9.2%, and Portugal at 9.1% are most at risk.

EuropeGreeceOtherUSAAsia

Greece Government Bond ownership by region

Europe 60$

Greece

29%

Other 5%

US

A 3

%

Asia

3%

Impact on USImpact on US U.S. exports to the EU could be impacted if the crisis slows growth in the EU and causes the euro to depreciate against the dollar.

As the crisis continues, increased perceptions of risk are impacting U.S financial markets.

CDT DOW dropped more than 992 points.

The panic in Greece caused one of the most turbulent days ever on Wall Street. In a matter of minutes, stocks plunged 900 points.

The Dow managed to recover but still ended in negative territory, The Dow closed down 347 points.

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. 

What level of debt is sustainable – 60-85% of GDP

Measures Taken

Internal Measures Austerity Package

Privatization

External Measures Bailout Package

Internal measuresAusterity PackageFirst Austerity Package announced on 9th Feb 2010

The Greek Parliament votes 155-138 in favor of $40 billion in painful budgetcuts and tax increases over the next few years.

Tax Increases

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% 1% for earning between €12,000 (£10,800) and €20,000 a year 2% for earning between €20,000 and €50,000 3% for earning between €50,000 to €100,000 4% for earning €100,000 or more Lawmakers and public office holders will pay a 5% rate

Internal measuresAusterity PackageSales Tax

VAT rate for restaurants and bars is being hiked from 13% to the new rate of 23% This rate already covers many products in the shops, including clothing, alcohol, electronics goods and some professional services.

Wealth Tax

Tougher luxury levies will be introduced on yachts, cars and swimming pools, along with higher property taxes

The changes should bring €2.32bn this year, rising to €3.38bn in 2012, €152mn in 2013 and €699mn in 2014

Internal measuresAusterity PackageSpending Cuts

Public Sector wages

Social benefits and pension

Social contribution

Public investment

The austerity programme also states that €7bn will be raised in 2013, €13bn in 2014 and €15bn in 2015.

PRIVATIZATIONStakes in various state assets will be placed on the auction block, in an effort to raise €50bn by 2015.

2011 Stake in Hellenic Telecom to Deutsche Telecom

Greece decided to sell 10% stake in Hellenic telecom which is state owned to German telecom company Deutsche Telecom for €400m. Deutsche Telekom already owns a 30 percent stake in O.T.E. that it bought in 2008.

Hellenic Post bank and Thessaloniki Water are also scheduled for sale

Hellenic post bank is a retail bank of greece which owned by Hellenic Republic. It’s a state owned company. Thessaloniki Water Supply And Sewerage Company SA is a Greece owned company that supplies water to the Thessaloniki urban complex.

PRIVATIZATION2011 Stakes in betting monopoly OPAP

OPAP - Greek Organisation of Football Prognostics

Two port operators, Piraeus Port and Thessaloniki Port, will also be partially

Piraeus Port Authority S.A. is a Greece owned company engaged in the management and operation of Piraeus port. Thessaloniki Port Authority SA is a Greece-based company involved in the management and operation of Thessaloniki port.

PRIVATIZATION2012 Next year, the government plans to sell stakes in Athens Water, refiner Hellenic Petroleum, electricity utility PPC, lender ATE bank. Government also plan to sell ports, airports, motorway concessions, state land and mining rights.

It plans further sales to raise 7bn euros in 2013, 13bn euros in 2014 and 15bn euros in 2015.

Revised Austerity PackageIntroduced new Austerity package on 2 May 2010.

Greece and its international lenders have agreed to revise the country's five-year austerity plan to include more tax increases and less spending cuts.

The revised 2011-2015 fiscal plan is the key to unlocking further EU-IMF loans for the debt-laden country.

It includes a total €28.4bn (£25.3bn) of fiscal measures, €155m more than in an initial version of the plan.

The revised plan foresees a total €14.32bn of spending cuts, about €490m less than in the previous version. It also calls for €14.09bn of tax measures, €649m more than in the initial version.

Revised Austerity PackageTax increases

Taxes will increase by €2.32bn this year, with additional taxes of €3.38bn euros in 2012, €152m in 2013 and €699m in 2014.

Cutting public sector wage By €770m in 2011, and €600m in 2012, €448m in 2013, €300m in 2014 and €71m in 2015.

Cuts in social benefits By €1.09bn this year, €1.28bn in 2012, €1.03bn in 2013, €1.01bn in 2014 and €700m in 2015.

 

External Measures In May-2010 IMF and EU proposed a bailout

plan for Greece worth EUR 110 bn Greece Bailout Distribution (in bn Euros)

2010 2010 (Actual)

2011 2011 (revised)

2012 2013 Total

IMF 10.4 10.4 13.3 10.8 8 5.8 30

EU 27.6 21.1 26.7 35.6 16 2.2 80

Total 38 31.5 40 46.4 24 8 110

Situation Solved or not

Now situation has become critical and Greece debt has increases to 370bn. We consider the three broad options open to Greece, the EU and the IMF: no restructuring (essentially an extension of EU/IMF loans), voluntary restructuring and a hard restructuring event. Our conclusion is that a voluntary restructuring is the most likely outcome.