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This for people who are giving a starter presentation on greece financial crisis.
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GREECE – A CASE STUDY
What went wrong?
Availability of capital
• Formation of Euro Zone
• Savings doubled to $70 trillion dollars in 5 yrs
• Investors looking for alternatives
Effect of excess capital
• Low cost of Borrowing- paid to borrow !!!
• Increased social security expenses
• High cost of Production
• Incompetent pricing in global market
International Trade Imbalance
Loss of Investors ConfidenceLoss of Investor Confidence• Non compliance of T & C’s
- Budget Deficit 3% of GDP
- Debt level – 60% of GDP
• “AAA+“ – was that right ?
How did this evolve?
2000 2004 2008
Availability of cheap debt Capital inflows were not used to help
the economy grow Beginning of the global financial crisis Shipping and tourism industry affected
by the changes in business cycle Debt began to pile up rapidly
Pre 2008 Era
2008 2012
Global financial crisis of 2008-09 strained public financesFear of European sovereign debt crisis started in early 2010Difficulty in raising funds Bailout package requested from EU & IMFDebt rating downgraded to “Junk” status.Worldwide impact on stock markets
Post 2008 Era
Possible spread to other Countries
What’s the way out?
• Bailout package• Rescue package• European Stability Mechanism• European Commercial Bank• Austerity Measures
Measures adopted
Greece Crater
1. Bailout Package
Bailout Package
2. Rescue Package
Rescue Package
ESM
3. ESM
ESM
4. ECB
ECB
AusterityPackage
Austerity
IncomeTax
45%
40%
VAT
23%
19%
Luxury tax increased by 10%
New duties levied on Petrol
New tax is levied on electricity charges
Duties on imported cars increased by 30%
Big cuts in public employee expenditures
Privatization by disinvestment
Reduction in number of Municipalities
Increase of retirement age from 60 to 65
Sale of Assets to Other Nations Conversion of Euro into the Earlier Currency “The Drachmas”
Other measures
SOCIAL IMPACT
Unemployment rate at 19.8%
• Highest since Greece joined Eurozone• 230 thousand people lost job in last year• @42.5% for 15-24 age group, 22.6% for 25-34
Unemployment benefit only for 1 Year
• < Euro 500 per month• 280k receive state benefits• Of the total 811k unemployed
7 out of 10 considering working abroad
• Unemployment rate to reach 20% in one year• Economy’s biggest problem• 5% long-term unemployed
65,000 Retail stores closed
• Private Sector wages cut by 10-20%, Govt. 20-30%• Consumption fell 8.6%, HH reduced spending by 1.6B euros• Consumption is Greek economy’s driving force, production lags
behind
NGO support critical
• Significant increase in the number of people relying on NGO’s
• 25% increase in homelessness• At the main canteen, 3500 people/day come
for food & clothing, compared to 100 people/day 5 years ago
• Average age of people seeking help reduced to 45 from 60 in 2 years
Debt crisis causes political turmoil
• 87% said they are unhappy with the quality of their lives
• > 100k supporters/day irrespective of the parties• Support for being part of Euro came down to 58%
from 72%
Change in Leadership
• PM George Papandreou quits in Nov 2011• Lucas Papademos to lead the new unity Govt.• No party have enough support to win• Rejection of the current political system has
added to the uncertainty
Will this impact India?
EXPORTS
INDIA’S EXPORT PROFILERegion FY 2010 (%) FY 2011 (%)
EU Countries 20.20 18.60Africa 5.80 6.50Asia 21.80 22.70WANA 22.00 22.60ASEAN 10.10 10.90North America 11.60 10.70Greece 0.25 0.14
FOREIGN DIRECT INVESTMENT
46%
17%
16%
8%
7%6%
1% 1%Mauritius
Euro Zone
Singapore
USA
UK
Japan
UAE
Switzerland
FOREIGN INSTITUTIONAL INVESTMENT
US mn $ FII Flows2003-04 10,918 2004-05 8,686 2005-06 9,926 2006-07 3,225 2007-08 20,328 2008-09 (15,017)2009-10 29,048 2010-11 29,422
FII MOVEMENT
Financial Year
FII Flows (US mn $)
2000-01 1,847
2001-02 1,505
2002-03 377
2003-04 10,918
2004-05 8,686
2005-06 9,926
2006-07 3,225
2007-08 20,328
2008-09 -15,017
2009-10 29,048
2010-11 29,422
EXCHANGE RATES
CONTROVERSIES
• Rating agencies suffer from a conflict of interest
• Role of the English language press questioned
• Hedge fund managers launch bearish bets
CONTROVERSIES
WILL GREECE SURVIVE?