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Grece Slowdown

Grece Slowdown

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Published by: Rohit Rawat on Apr 28, 2010
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04/28/2010

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Source : The Economic Times Date :21st April 2010 Presented by Rohit Rawat Mba 2nd sem

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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

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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.

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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 ½45 billion ($61 billion) and is expected to take three weeks to negotiate, with a pay out within weeks of ½8.5 billion of Greek bonds becoming due for rollover

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"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.

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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.

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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.

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.

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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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