uL81 C8lSlS

WPA1 lS Lu8ClAn unlCn

W locaLed prlmarlly ln Lurope
W formed by slx counLrles
W 1he Luropean unlon ls an economlc and
pollLlcal unlon of 27 ln 19381he Lu has
developed a slngle markeL Lhrough a
sLandardlsed sysLem of laws whlch apply ln all
member sLaLes
W
W Lu pollcles alm Lo ensure Lhe free movemenL of
people goods servlces and caplLal enacLs
leglslaLlon ln [usLlce and home affalrs and
malnLalns common pollcles on Lrade
agrlculLure flsherles and reglonal developmenL
W opulaLlon of 73 of Lhe world
W Lu represenLs an esLlmaLed 20 of global Cu
when measured ln Lerms of purchaslng power
parlLy
lnLroducLlon
W ?ears of unresLralned spendlng cheap lendlng and fallure
Lo lmplemenL flnanclal reforms lefL Creece badly exposed
when Lhe global economlc downLurn sLruck 1he debL
levels and deflclLs LhaL exceeded llmlLs seL by Lhe Luro
zone were revealed exposed
W ln Lhe flrsL quarLer of 2010 Lhe naLlonal debL of Creece
was puL aL t300 bllllon ($4136 bllllon) whlch ls blgger
Lhan Lhe counLrys economy 1he counLrys deflclL (lLs
expendlLure ln comparlson Lo lLs revenue) ls 127
8ackground
Creece durlng llnanclal Crlsls
W Lconomy of Creece
W llCS Creece has spread Lhe rlsk Lo oLher
weak and lndebLed Luroarea economles
1he AcLual Crlsls
W MosL counLrles have seen esLlmaLes for Lhelr
budgeL deflclL swell over Lhe course of 2009
buL Lhe magnlLude of Lhe Creek revlslons over
boLh 2008 and 2009 and Lhe lmpllcaLlons for
excesslve exLernal debL flnanclng has been
shocklng 1he esLlmaLed 2009 deflclL rose
from 31 for 2009 as reporLed Lo Lhe
Luropean Commlsslon durlng Lhe sprlng Lo
127
lmpacL of Crlsls
W SouLheasLern Lurope
Creece's forelgn pollcy focus on Lhe reglon and
growlng Lrade volumes beLween Lhe
counLrles nelghborlng Serbla Albanla
Macedonla 8omanla 8ulgarla and 1urkey
cannoL remaln lndlfferenL Lo Lhe magnlLude of
Lhe crlsls nexL door
W Creece ls already ln ma[or breach of Luro
zone rules on deflclL managemenL and wlLh
Lhe flnanclal markeLs beLLlng Lhe counLry wlll
defaulL on lLs debLs Lhls reflecLs badly on Lhe
credlblllLy of Lhe euro
W lmpacL on prlvaLe lndlvlduals
1he mosL obvlous way would be Lhrough Lax
bllls as Lurope agrees Lo rlde Lo Lhe rescue
and help Creece deal wlLh lLs mounLlng publlc
and forelgn debLs
Any asslsLance Lo Creece wlll come aL a cosL LhaL
wlll ulLlmaLely have Lo be borne by Laxpayers
ln Lhe naLlons LhaL conLrlbuLe
Creek crlsls has made lnvesLors nervous abouL
lendlng money Lo governmenLs Lhrough
buylng governmenL bonds
Lverybodys lnLeresL raLes are headlng hlgher as
governmenLs are havlng Lo pay a greaLer rlsk
premlum Lo borrow money
W 8educed wealLh
1akehome pay ls llkely Lo fall as lL ls eroded by
rlslng Laxes and everyone wlll have Lo work
longer before Lhey reLlre by whlch Llme Lhey
are llkely Lo flnd LhaL Lhelr penslons have
shrunk
W S|ower recovery
1he crlsls ls also seL Lo slow down Lhe economlc
recovery
eso|ut|on Conc|us|on
W 8a||out p|an
Luropean governmenLs and Lhe lnLernaLlonal MoneLary lund
(lMl) have sLunned global sLock markeLs wlLh a 730bneuro
($973bn 630bn) package of sLandby funds deslgned Lo
see off flnanclal melLdown
1he 27 counLrles of Lhe Luropean unlon (Lu) wlll conLrlbuLe
300bn Luros Lowards Lhe flnanclal safeLy neL 1hey have
been [olned by Lhe lnLernaLlonal MoneLary lund (lMl)
whlch ls provldlng oLher 230bn Luros
1he vasL bulk of Luropes conLrlbuLlon comes from Lhe 16
naLlon Lurozone bloc whlch ls promlslng 440bn ln loan
guaranLees 1he Luropean Commlsslon ls provldlng 60bn
Luros lmmedlaLely
W ermany and the Luro rescue p|an
W Cermanys parllamenL has approved Lhe
counLrys conLrlbuLlon Lo a 730bn euro ($938bn
631bn) rescue deal for Lhe Lurozone
W 1he Cerman conLrlbuLlon ls key Lo Lhe plan and
would amounL Lo up Lo 148bn Luros Chancellor
Angela Merkel warned LhaL Lhe Luro would be ln
danger wlLhouL sLrong acLlon
W @he ro|e of reece
Creece has ouLllned plans Lo cuL lLs budgeL deflclL
or Lhe amounL lLs publlc spendlng exceeds
LaxaLlon Lo 87 of lLs Cu ln 2010 and Lo less
Lhan 3 by 2012
W !usL before Lhe masslve ballouL package was
announced Lhe Creek governmenL pledged Lo
make furLher spendlng cuLs and Lax lncreases
LoLalllng 30bn euros over Lhree years on Lop of
ausLerlLy measures already Laken
Concluslon
W Creece's uebL Crlsls has puL Lhe Lu under Lhe
scope lL has shlfLed Lhe aLLenLlon Lo Lhe
efflclency Lhe success of Lhe Lurozone lL's
consldered as probably Lhe blggesL LesL Lhe Lu (
Lhe LMuln parLlcular) has gone Lhrough Pow
Lhe Lu Creece are handllng Lhe crlsls wlLh Lhe
whole ballouL plan wlll reflecL Lo whaL exLenL Lhe
Lu ls able Lo funcLlon on lLs own as a powerful
economlc enLlLy
W lL's Loo early yeL Lo measure Lhe effecLlveness of
Lhe ball ouL plan