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IS GREECE ON THE VERGE OF

BANKRUPTCY?

Source : The Economic Times


Date :21st April 2010

Presented by
Rohit Rawat
Mba 2nd sem
Economic Crisis
 In early 2010, fears of a sovereign debt crisis
developed concerning some countries in the
Euro Area, specifically: Greece, Spain, Italy,
Ireland, and Portugal. This led to a crisis of
confidence as well as the widening of bond
yield spreads and risk insurance on
credit default swaps between these countries
and other Eurozone members, specifically
Germany and Franc
Impact on Foreign Exchange Markets

 The focus on rising yields on Greek Government debt


has led to a weakening of the euro and a widespread
global stock and commodity selloff in February 2010.
 It must be noted that the weakening in the value of
the Euro on foreign exchange markets was welcomed
in Germany, which is one of the world's leading
exporters. Given that the Euro Area does not rely on
foreign capital, that is it has a balanced current
account, the lower Euro is seen as a potential boost to
growth in the Euro Area as net exports are likely to
rise.
EU/IMF bailout Greece

 On the 23 April 2010, the Greek government


requested that the EU/IMF bailout package be
activated. The IMF has said it was "prepared to
move expeditiously on this request." The size
of the bail out is expected to be €45 billion ($61
billion) and is expected to take three weeks to
negotiate, with a pay out within weeks of €8.5
billion of Greek bonds becoming due for
rollover
The Whole Scenario
 "The mission is within the context of the regular
surveillance that the IMF provides to its
membership," the brief statement said.
 A Greek finance ministry official said there would be
no talk of a loan.

 They have invited them to help with their technical


know-how, notably for the reform that we have
launched to draft the budget," the official told AFP on
condition of anonymity.
Continued……

 Greece, whose public spending deficit rose to


12.7 percent of output last year and debt climbed
to 113 percent of gross domestic product (GDP),
must present its crisis program to the EU by the
end of the month.
 The Socialist government has said it will get the
deficit down to 8.7 percent in 2010 by cutting
government spending and fighting tax fraud. It
aims to bring it to below 3.0 percent of GDP, the
limit imposed by the eurozone, in 2012.
Continued……
 The government on Friday announced a 20
percent increase in tobacco and alcohol taxes
and a higher inheritance tax as it fended off EU
pressure for drastic action to tackle its debt
mountain.
Solution
The International Monetary Fund said Monday it
is sending a mission to Athens this week for
talks on helping debt-stricken Greece overcome
its financial crisis.
The Mission is "to explore possibilities for
technical assistance from the IMF in the coming
months on pension reform, tax policy, tax
administration, and budget management," the
fund said in a statement.
Solution…
 Finance Minister Georges Papaconstantinou
announced the tax hikes as he reaffirmed the
need for the country to establish financial
credibility in Europe where Greece's troubles
have raised concerns about the eurozone's
stability.
 Papaconstantinou told the Italian newspaper Il
Sole 24 recently that "we will solve our fiscal
problems alone."

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