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Slide 2 EU is a political and economic union, comprising of 27 countries that form the European Union. WWII led the foundation of European Union, with the aim of aiming at peace, stability and economic growth for member countries, by establish a free trade zone and adopting a single currency Slide 3 From late 2009, fears of a sovereign debt crisis developed among investors concerning rising government debt levels across the globe together with a wave of downgrading of government debt of certain European states. Concerns intensified early 2010 and thereafter Slide 5 This chart shows the level of risk of default of countries. According to this Iceland, Greece and Ireland all have risk of a default of 50%. Whereas, Germany has less than 5% of risk of default. Slide 7 According to the German plan, a commissioner would be appointed from the EU who will have the power to influence Greek budget and taxation policies along with complete control over their expenditure, taxes and monetary policies. This commissioner will be appointed to keep the Greek government inconsistent to its promises and repayment of the debt. The problem is that the Greek government refuses to accept the terms and conditions of this proposal as it is likely to hurt their national integrity and sovereignty at the price of the financial aid. The reason for such harsh conditions is due to poor fiscal and monetary policies being adopted by the Greek government in the past, which printed more notes to cover their deficits and failure to comply to past agreements. Slide 10 The Greek economy was one of the fastest growing in the eurozone from 2000 to 2007; during that period, it grew at an annual rate of 4.2% as foreign capital flooded the country. The late-2000s financial crisis that began in 2007 had a particularly large effect on Greece. Slide 11 Public Deficit: the gap between revenues and expenditures for a government (over a given period of time); often referred to as an internal deficit or fiscal deficit. On 27 April 2010, the Greek debt rating was decreased to the upper levels of 'junk' status by Standard & Poor's amidst hints of default by the Greek government.. Standard & Poor's estimates that in the event of default investors would fail to get 30 50% of their money back. Due to this investors lost faith in Greek Bonds and withdrew their investments The main reasons for Greece Financial Crisis were that Greece had a high cost of financing government debt, loss making industries especially railway and exorbitant salary packages. Due to these factors, investors lost faith in Greece and withdrew their money Slide 12 Austerity : In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services
they can default on all debts. First.provided. the Greeks must consider the consequences of simply defaulting.being forced to use their national currency instead of the euro . "Austerity" was named the word of the year by Merriam-Webster in 2010. Slide 16 The Greeks have two choices. Second. It is not clear that no one would lend to Greece after a default. they can accept responsibility for the debts on the terms negotiated and accede to the constraints on their budget and tax discretion whether imposed by a commissioner or by a less formal structure. bankruptcy has become a respectable strategic option. Default might see them frozen out of world financial markets. Austerity policies are often used by governments to reduce their deficit spending  while sometimes coupled with increases in taxes to pay back creditors to reduce debt. Austerity measures are typically taken if there is a threat that a government cannot honor its debt liabilities. As we have learned from corporate behavior. Such a situation may arise if a government has borrowed in foreign currencies that they have no right to issue or they have been legally forbidden from issuing their own currency. The certain price of default -. Therefore.