THE GREEK CRISIS

TRAGEDY OR
OPPORTUNITY
Group 2

OVERVIEW
Amna Tariq Butt

Current Scenario
Daily Crisis
Debt write off
War Amount 200 Billion Euro Approx.
Promise to strengthen social protection
GDP deficit of 2009 (3.5%) to 2010 (15%)
Higher interest rates demanded by market
Help from IMF & EU
Structural reforms
Reversal policies
Bonds yield 8.7%
Greece 2.6% GDP of the Euro area

Overview
Re - Elections
Weak Political System
Budget Deficits
Triple times than expected
Mistreated
Seeking help from international organizations
IMF & EU
Back supporting currency as compared to dollar
Reserve currency
Euro shouldn't default
Euro Area nations (Germany & England) did not support

Cont.
Hidden agendas
Stability for survival
Pressure handling

HISTORY
Syed Iqbal Jaffery

Greek History
The government of 1950 adopted conservative fiscal and

monetary policies.
The currency committee directed private loans to
financing trade and high-values-add industries such as oil
refineries.
Greece became an important tourist destination. Shippers
invested in the economy, income from tourism and
shipping helped in increasing Real per Capita GDP.
In 1963 papandreou formed a government which is
thrown off by Jantu. Then karmanalis return to run the
transition government.

Greek History
Greek is the cradle of European Civilization.
Greek defaulted four times on its debt in the nineteenth

century.
Greeks nineteenth century economy was based on
agriculture and shipping.
Post world war II Hitler conquered Greece and drained all
its resources.
Once its was liberated by allies it was ruled by political
dynasties. Karamanilis who provided leadership under
George Papandreou I during decade starting from 1980
and then George Papandreou II in 2009.

The New Greek Polity

The new governments claim was seek to create

conditions of employment for all citizens and requiring all

universities to be public.
During this period Tax evasion and bribery become
endemic.
4.4.2 rule was in practice.
Nationalization of Banks and Airways.
Proposed joining of European Community.
Greece Joining European Union.
Greece was not upto the criteria for the joining the EU.
EU welcomed Greece as they just became Democracy.

Populist Years - 1980

PASOK won elections on the basis of social protection

and income redistribution.

Increase in real minimum wages and pensions
Granted large raises to public sector employees
Established a universal free national health system
Increase the weight of Public sector.
Nationalizing many industries.
Public spending increased from 29% to 48% of GDP.
Due to oil shocks of 1970 inflation averaged almost 20%.
Un employment remained below EC average.

European Union: 1990

1992 EC members signed the Maastricht Treaty.
Politically influenced.
German agreed with French alliance in EU provided

French help in German unification.

The EC declared greek fiscal deficit including interest was
only 1.6% of GDP and inflation was 20%
On Jan 2001, Greece joined Euro area.

GATHERING
TROUBLES
Faiqa Qamar

Gathering Troubles
20% unemployment provoked demonstrations
George Papandreou led POSAK to victory
Selected George Papaconstantinou, as Finance Minister
Actual deficit was understated by previous governments
In 2009, deficit would be 12.5% of GDP
Meeting with EU leaders in Brussels
Government passed 3 deficit-reduction packages, cumulatively

cutting the deficit down to 5% of GDP

Higher value added tax
Higher tax on fuels, tobacco & alcohol
Expenditure reductions (public sector wages, bonuses & state fund

pensions)
Structural reforms to make labor relations flexible

Cont.
Things kept going wrong
Euro state determined that Greeks statistical office was giving

false data
Parliament established an independent statistical office

3 largest rating agencies kept downgrading the Greek

governments debt
Forced to pay higher interest rates & had to refinance $ 53 billion
in 2010
The Troika: 3 international institutions might help the Greek
government to prevent the fiscal collapse
The European Council
The European Central Bank
International Monetary Fund

Cont.
The European Council
Worst dilemma since the creation of Euro
Any solution would have to be approved by the 17 euro area
nations that would shoulder the most cost
Nations outside euro area ruled out participating in the rescue
Britain
Germany

France favored to help Greece

EU members had self interest reasons to support Greece
Euro area banks were in France in Germany & estimated to hold $60 to

$120 billion Greek government bonds

UK & Switzerland were estimated to hold $25 to $50 billion bonds

Cont.
The European Central Bank
Role was to maintain price stability & lender of Euro area banks
Had standard financing tools
Weekly main refinancing operations (MROs)
Influence the rate at which banks lend & borrow from each other
Long Term refinancing operations (LTROs)
Cap & Floor the Interest rates
Banks deposit funds at an int. rates lower the overnight in the interbank marklet
Introduced the expansionary monetary policy by lowering benchmark rate

on MRO to 1%

International Monetary Fund

Provides loans to nations contingent on reforms
Disburses loans after verifying that reforms were implemented on
schedule

MOUNTING PRESSURE
Amna Tariq Butt

Mounting Pressure
Possibility of an instruments
Maturity of loans
European Political Pressure
France Agrees to Loan: Terms
Radical reforms in details
Liquidity to pay back loan if the system fails

Crunch Time
Rescue Plan by IMF
15 Euro Billions
Still not politically stable as per Govt. suspensions (Euro 45 Billion)
Not enough to inject stability
Second Attempt
Euro 110 Billion
3 years in markets
Re payment of loans in 3rd Quarter
Structural reforms
Global Stock market plunge

Cont.
The new Safety net
Euro 750 Billion
Loss of regional elections
Stock & awe strategy from ECB (Buying stocks from Govt)
Banks were losing independence from political pressures
Positive reaction from investors

BANKING ON EUROPE
Rana Faizan

 Trouble in Public Sector

Leakages in GDP & other Components

 Fiscal deficit
Taxation
Up gradation of Taxation system

WHAT FUTURE HOLDS?

Hira Ajmal

Future Holds??
Problem: Stabilize debt to GDP ratio
Problem: Political reform required

- No stable policy
Problem: GDP triple deficit

- EU hidden agendas
CONCLUSION

1- Can Greece be politically stable for several years?

2- How much growth Greece could have by structural
reformation?