greece crisis & it's impact on european countries

ECONOMIC CRISIS IN GREECE&

IT’S IMPACT ON EUROPIAN COUNTRIES

INTRODUCTION TO GREECE

• Greece is a country located in Southern Europe on the southern end of the Balkan point possessing an archipelago of about 2,000 islands.

INTRODUCTION TO GREECE

• Capital – Athens• Currency before Euro – Drachma• Adopted Euro as a currency in 2000• Main sectors with grater distribution to

GDP (a). Tourism (b). Shipping

INTRODUCTION TO EURO ZONE

• A geographic and economic region that consists of all the European union countries that have fully incorporated the euro as their national currency.

• The euro zone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.

PHILOSOPHY OF EURO ZONE

• Single Market for free circulation of goods, capital, people and services.

• Single currency to eliminate exchange rate transaction costs and risks.

• Macroeconomic stability (e.g. low inflation) and financial integration of the nations in the Euro zone.

• Each member country to become stronger against other big economies.

WHY GREECE IN TROUBLE?

Just like a household that spends more money each month than it brings in, Greece has piled up a mountain of debt by spending beyond its means.

THE REASONS BEHIND THE CRISIS

• 2004 Summer Olympic games• 2007 US Recession• Increase of labor cost• Inefficient Pension System• Early Retirement• Benefits• Tax Evasion• Euro Currency• Mismanagement• Corruption

2004 SUMMER OLYMPIC GAMES

In 2004 Greece was hosting for the summer Olympic Games. The costs were huge. Government had to build new airports, roads, hotels, facilities and stadiums around the Athens. Moreover, Greece had to complete new transportation plan of rebuilding the Athens infrastructure and clean up the whole city. The costs of doing all of these points were astronomically high, these costs created a high budget deficit in the next year, beside the decrease in tourism.

2007 US RECESSION

As the Great Recession that began in the U.S. in 2007–2009 spread to Europe, the flow of funds lent from the European core countries (e.g., Germany, France, and Italy)to the peripheral countries such as Greece began to dry up.

INCREASE OF LABOUR COSTS

However, labour costs increased more in peripheral countries such as Greece relative to core countries such as Germany, making Greek exports less competitive. As a result, Greece saw its current account (trade) deficit rise significantly.

A trade deficit means that a country is consuming more than it produces, which requires borrowing from other countries.

INCREASE OF LABOUR COSTS

The main is the enormously high prices for the trips and services for the visitors. Greeks decided that they can easily make the prices higher than it should be and overcharge the tourists because of natural beauty of the country and its historical and cultural places. However, the tourists started to choose often a close alternative – Turkey. Turkey has beautiful beaches, excellent service and many places to visit as well for much lower price.

INEFFICIENT PENSION SYSTEM

• Greece spent 17.5 percent of its economic output on pension payments.• For example, a employee retires with

salary of 10,000 Euros, Greece pay pension of 9,500 Euros

BENIFITS

• 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• 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.

• And some police and military workers have retired as early as age 40 or 45.

• There are also unique benefits for some workers. Female employees of state-owned banks with children under 18 could retire as early 43.

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.

• For example, there is no tax on property. The famous business in Greece was to take loans and to buy many apartments , houses for rent. What is more, after the crisis has come, Greeks refused to start paying higher taxes in order to save economy and began the demonstrations and protests.

EURO CURRENCY

• Greece wants devaluation in the Euro• Countries like Germany & France who are

not in debt problem like the Greece, a reduction in the value of the Euro works against their interests because unnecessarily make their imports more expensive and prices of the commodity in the general interests.

Greece’s G.D.P. and Unemployment Rates in Europe First quarter 2015

Debt in the European Union ( Fourth quarter of 2014 )

Greece’s Creditors

Here we present some

pictures that shows the intensity of Greece crisis

GREECE CRISIS TIMELINE• 20 October 2009 – Greece’s budget deficit is expected to

reach -12.5% of GDP.• 22 October 2009 – Greece’s credit rating is downgraded by

Fitch, one of the Big Three credit ratings agencies, from A to A−.to BBB+

• 16 December 2009 – Greece’s credit rating is downgraded by Standard and Poor’s, another of the Big Three credit ratings agencies.

• 23 December 2009 – Greece’s credit rating is downgraded by Moody’s, the third of the Big Three credit ratings agencies, from A1 to A2.

GREECE CRISIS TIMELINE

• 21 January 2010 – The Greek/German 10-year debt yield spread surpasses 300 basis points.

• 9 April 2010 – Greece’s credit rating is downgraded by Fitch from BBB+ to BBB−.

• 22 April 2010 – Greece’s credit rating is downgraded by Moody’s from A2 to A3.


• 14 January 2011 – Greece’s credit rating is downgraded by Fitch from BBB− to BB+ to B+

• 7 March 2011 – Greece’s credit rating is downgraded by Moody’s from Ba1 to B1.

• 29 March 2011 – Greece’s credit rating is downgraded by Standard and Poor’s to BB− to B.

• 1 June 2011 – Greece’s credit rating is downgraded by Moody’s from B1 to Caa1.


• 9 March 2012 – Greek 10-year bond yields reach a peak of 44.21% on the eve of debt restructuring. 83.5% of Greek bondholders are in the private sector.

• 25 May 2012 – The Athens Stock Exchange general index falls below 500 points.


• 14 Jan 2014 – Greece posts a primary budget surplus of 1.5% of GDP for the 2013 financial year (€691 million).

• 10 April 2014 – Greece returns to financial markets with the issue of €3 billion Eurobonds at a yield below 6%.

• 9 May 2014 – The Greek Parliament approves the Medium-term Fiscal Strategy plan 2015-2018.

• 23 May 2014 – Greece’s credit rating is upgraded by Fitch from B− to B.

GREECE CRISIS TIMELINE• 25 January 2015 – The Greek legislative election is held. Syriza

wins a historic victory.• 26 January 2015 – Syriza and the Independent Greeks join to

form a new coalition government.Alexis Tsipras is sworn in as the new Prime Minister.Yanis Varoufakis becomes the new finance minister.

• 20 February 2015 – The Eurogroup brokers an agreement between Greece and the eurozone for a four-month loan extension.

• 27 June 2015 – Prime Minister Tsipras announces a referendum on a bailout agreement, to be held on 5 July 2015.

• 28 June 2015 – The Greek parliament approves the referendum, with 178 votes for and 120 against.

GREECE CRISIS TIMELINE• 5 July 2015 – The Greek bailout referendum is held. Over

61% vote against the proposed measures by the Juncker Commission, the ECB and the IMF.Antonis Samaras resigns as leader of New Democracy and is succeeded by acting leader Vangelis Meimarakis

• 6 July 2015 – Finance minister Varoufakis resigns and is replaced by Euclid Tsakalotos.

• 11 July 2015 – The Greek parliament approves the government proposal about bailout plan. 251 MPs vote for the proposal but 17 MPs of governmentcoalition do not support.

GREECE CRISIS TIMELINE• 13 July 2015 – Greece and Europeans creditors strike deal for 86

billion euros bailout over three years, though it must be approved by the parliaments of all of the Eurozone member states.

• 16 July 2015 – The Greek Parliament approves the first round of measures (“prior actions”) required by the creditors, including changes to pensions and taxes, by 229 to 64 despite 21% of Syriza MPs voting against,and some violent protests.

• 17 July 2015 – The cabinet is reshuffled. The left wing deputies who revolted against the new bailout agreement are sacked from government . German parliament approves the start of negotiations for the third bailout programme for Greece.

GREECE CRISIS TIMELINE• 14 August 2015 – Greek parliament approves the package of

measures for the third bailout package. 222 MPs voted for the agreement, 64 against and another 14 abstained or were absent. 32 Syriza MPs voted against and another 11 abstained.

• 20 August 2015 – The prime minister Alexis Tsipras resigns and proclaims elections for 20 September.

• 27 August 2015 – Vassiliki Thanou was sworn as caretaker prime minister until 20th September election.

• 20 September 2015 – The Greek legislative election is held. Syriza wins with 7.5 point over New Democracy.

Crisis Impact On European Countries

First off, they'd lose real money here, as in the hundreds of billions. Greece's government hasn't just gotten 240 billion Euros, but its banks also have received 89 billion Euros in loans from the ECB that might be defaulted on in the case of euro exit.


Second, there'd be some contagion. Borrowing costs could creep up for Italy, Spain and Portugal, but the fact that the ECB is already buying their bonds and has promised to buy as many as it takes to keep their interest rates low means they shouldn't rise that much.


Third, all this uncertainty should make the euro fall further, boosting their exports in the process.

Another Solutions

• Greece leave the euro Zone.• Reform the tax code. • Devaluation of Euro.• Reform the pension system.• Cut spending. • Selling the Islands.

Conclusion

• The EU, IMF, ECB lending Greece to solve the underlying program. But the maximum money is spent for repayment of debt and not for productive use.

• Though they are pumping money in the Greece, they are not sure about the future of the Greece Economy.

• Now the condition is in dilemma, Whether to save Greece or let it go default.

Greece’s successful recovery can lead to European recovery and the world’s. Let Greek thought become a leader of action too.

ANY QUESTIONS ?,

IDEAS & COMMENTS.

Ask, share & tell, it might be worth Billion Euros.

THANK YOUFor Watching & Hope You Enjoyed Our

PowerPoint.

PRESENTED BY:Chandra Sri.

greece crisis & it's impact on european countries

Economy & Finance