GREECE DEBT CRISIS

Dareen Atef
Dina Wahba
Safiya Galal
Sarah Hani
Dr. Amir Nasry

Introduction
Years of unrestrained spending, cheap lending and
failure to implement financial reforms left Greece
badly exposed when the global economic
downturn struck. The debt levels and deficits that
exceeded limits set by the Euro-zone were
revealed & exposed.
In the first quarter of 2010, the national debt of
Greece was put at 300 billion ($413.6 billion),
which is bigger than the country's economy. The
country's deficit (its expenditure in comparison to
its revenue) is 12.7%.

Background
Greece during Financial Crisis
Economy of Greece
PIIGS: Greece has spread the risk to
other weak and indebted Euro-area
economies.

The Actual Crisis

Most countries have seen estimates for
their budget deficit swell over the course
of 2009, but the magnitude of the Greek
revisions over both 2008 and 2009 and
the implications for excessive external
debt financing has been shocking. The
estimated 2009 deficit rose from 5.1 %
for 2009 as reported to the European
Commission during the spring to 12.7%

 Twin Deficits
Since y=C+I+G+N-X
and
Y= S+I+T
then (S-I) (T-G) = (X-M)

Impact of Crisis
Southeastern Europe
Greeces foreign policy focus on the
region and growing trade volumes
between the countries, neighboring
Serbia, Albania, Macedonia, Romania,
Bulgaria and Turkey cannot remain
indifferent to the magnitude of the
crisis next door.

 Spill-over effect:
Some spillover effects have already started
to manifest themselves. As Greek 10year bonds fall and yields continue to
remain above 6%, sovereign debt
issuance and the risk premium investors
demand to hold securities emitted by
Romania, Serbia, Bulgaria and Turkey
have been adversely affected.

 Greece is already in major breach of

Euro-zone rules on deficit
management and with the financial
markets betting the country will
default on its debts, this reflects
badly on the credibility of the euro.

 Impact on private individuals:

The most obvious way would be through
tax bills, as Europe agrees to ride to
the rescue and help Greece deal with
its mounting public and foreign debts.
Any assistance to Greece will come at a
cost that will ultimately have to be
borne by taxpayers in the nations that
contribute.

 Contagion Effect
Greek crisis has made investors nervous
about lending money to governments
through buying government bonds.
Everybody's interest rates are heading
higher as governments are having to
pay a greater risk premium to borrow
money.

 Reduced wealth:
Take-home pay is likely to fall as it is
eroded by rising taxes and everyone
will have to work longer before they
retire - by which time they are likely
to find that their pensions have
shrunk.

 Slower recovery
The crisis is also set to slow down the
embryonic economic recovery.

Resolution & Conclusion:

Bailout plan
European governments and the International Monetary
Fund (IMF) have stunned global stock markets with a
750bn-euro ($975bn; 650bn) package of standby
funds designed to see off financial meltdown.
The 27 countries of the European Union (EU) will
contribute 500bn Euros towards the financial safety
net. They have been joined by the International
Monetary Fund (IMF), which is providing other 250bn
Euros.
The vast bulk of Europe's contribution comes from the
16-nation Euro-zone bloc, which is promising 440bn
in loan guarantees. The European Commission is
providing 60bn Euros immediately.

 Germany and the Euro rescue plan

Germany's parliament has approved the
country's contribution to a 750bn euro
($938bn, 651bn) rescue deal for the Eurozone.
The German contribution is key to the plan,
and would amount to up to 148bn Euros.
Chancellor Angela Merkel warned that the
Euro would be "in danger" without strong
action.

 The role of Greece

Greece has outlined plans to cut its budget
deficit, or the amount its public spending
exceeds taxation, to 8.7% of its GDP in
2010, and to less than 3% by 2012.
Just before the massive bail-out package
was announced the Greek government
pledged to make further spending cuts and
tax increases totalling 30bn euros over
three years - on top of austerity measures
already taken.

Conclusion
Greeces Debt Crisis has put the EU under
the scope, & it has shifted the attention to
the efficiency & the success of the Eurozone. Its considered as probably the
biggest test the EU (& the EMU-in
particular) has gone through. How the EU
& Greece are handling the crisis with the
whole bail-out plan will reflect to what
extent the EU is able to function on its
own as a powerful economic entity.
Its too early yet to measure the
effectiveness of the bail out plan.