THE GREEK TRAGEDY

MK Harish E-40 Shyam Ramkumar E-44 S.Prabhu E-47 S.Gokulnath E-48

Agenda
Current Situation Causes

The Measures
Implications

Current Situation

Situation 1 yr back
Bonds rated as Junk

Total debt - 142 % of GDP

High interest on Debt Liquidity crunch

Government not able to run the country

Timeline
Greece joined the Euro in 2001 by fudging the statistics
Recession impacted Greeks main source of income Tourism and ship building Debt rises to 262 bn from

Government started borrowing heavily by selling EU bonds

168 bn in 2004
Almost all the revenue went in to service interest

Government borrowed more to boost the economy

Greek bonds were given junk status

Causes

Causes
Domestic Factors International Factors

Domestic Factors
High government spending
Weak government revenues Declining international competitiveness

High government spending and weak revenues

Overstaffed and inefficient public administration
Costly pension systems and healthcare benefits Weak revenue collection due to high tax evasion

International Factors
More capital at lower interest rates

Slack enforcement of rules by EU

Trade Imbalance

The Measures

Bailout
April 2010 45 Billion Euros

June 2011

110 Billion Euros

Austerity Measures
Increase in Taxation Public Sector Cuts Spending Cuts

Cutting Benefits
Privatization

Taxation
Decrease in Tax free slabs
Higher Property Taxes Higher VAT rates Introduction of Luxury Levies Increase in Excise Duty Special Levies

Public Sector Cuts

Wage cut of 30% for employees

Termination of temporary contracts Reduction in hiring

Spending Cuts
Cut in Defense spending and HealthCare Reduction in subsidy of local governments Closing down or merging schools

Cutting Benefits
Cracking down on evasion and undeclared work Statutory retirement age will be raised to 65 40 years of work will be needed for full pension Benefits will be linked to lifetime contributions

Privatization

Plans to raise 50 billion euros by 2015

Selling stake in public sector companies ,ports , land and cinema

Alternative measures
Exit from Euro followed by currency devaluation?

Is Inflation a solution?

Implications

Implications
Internal Implications External Implications

Internal
Social Unrest Similar to 1930s Germany

External
Implications for European Union

Implications for India

Implications for EU
PIGS Debt Owing Pattern Domino Effect

Implications for India

EU is Indias largest trade partner Volatility of markets

But largely insulated

Source - http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=IN,US

Thank You

Snapshot of Greeces economy

Public debt to GDP in 2010 (%)

Rising debt of Greece

Relative price indicators based on export prices

120 115 110 105

Germany Greece Spain France

100
95 90 85 80 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: European Commission (2010)

Reduced borrowing costs further increased the debt of Greece

PIGS

Debt Owing Pattern