GREEK DEBT CRISIS

6% .Unfolding of the crisis    May 2010 Greek govt·s budget deficit estimated to be more than 13. one of the highest in the world relative to GDP. in 2010. Government debt expected to exceed 120% of GDP. . The news sends shockwaves across the investor community.

.5%. would lead to recession. eminent economist on Eurozone issues. 2010: Euro zone and International Monetary fund agree on a £110 billion rescue package for Greece.   Proposed spending cuts of 11% of GDP in 2010. 2% in 2012 and 2013.  According to Daniel Gros. 1% of GDP decline in Greek govt· spending lowers demand by 2.3% in 2011. May 2. conditional on implementation of harsh Greek austerity measures. hence proposed high spending cuts. 4.

widening of bond yield spreads ii. as they appear risky to lenders like:  IRELAND  SPAIN  PORTUGAL Loss of confidence due to: i. credit default swaps .Loss of investor confidence. with high budget deficits. in Greece as well as other EURO zone economies.

and may cause Euro to fall against major currencies .Difficult to implement spending cuts and raise taxes due to: a) Civil unrest b) Hostility in northern European policy circles. Bailout package implies loss of credibility for GREECE.

CAUSES  POLITICAL ECONOMIC  .

Govt in an effort to bring disenfranchised left leaning population into the economic mainstream. pensions. began running large deficits to finance public sector jobs. and other social benefits. and removal of right leaning military junta.POLITICAL  Post restoration of democracy in 1974. .

With the introduction of EURO.ECONOMIC CAUSES  Initially. currency devaluation helped finance borrowings.   The Global financial crisis which began in 2008. allowed Greece to borrow. revenues in 2009 fell by 15%. affected 2 of Greece's largest industries: A) TOURISM B) SHIPPING Consequently.  . lower interest rates.

. In 2009. consistently. from 6% to 12. In 2001. alarmingly. and deliberately misreported the country·s official economic statistics.MISREPORTING  To comply with Monetary Union guidelines. Greek govt· paid hefty fees to Goldman Sachs for arranging transactions that hid borrowings.7%. govt· raised deficit estimates. hiding actual level of borrowing. GOVERNMENT OF GREECE.

80% of budget savings of Greece go to Germany. Greek debt rating downgraded to ¶junk· status. and UK. hence posing the risk of a sovereign risk contagion. by S&P.EFFECTS ON INDIAN AND OTHER ECONOMIES  Greek debt market is reliant on foreign investors to the extent of 70%. including that of Italy. especially to banking system.   . France and other foreign debt holders (banks) April 2010.

Downgrading of rating of Spain. and Portugal. Ireland. Higher yields on government debt would cause concern of potential bank runs in many European nations.   . Bond yields increase in absolute and relative terms to German government bonds.

in the near to medium term. including Montek Singh Ahluwalia. . causing domestic financial markets to be volatile.EFFECTS ON INDIAN ECONOMY According to experts. owing to concerns regarding: the viability of £110 billion bailout package Implementation of Greek austerity measures. SHORT TERM IMPACT: Mainly sentimental. analysts.

. B) Possesses comfortable foreign exchange reserves. since Indian economy : A) Reliant on domestic factors for growth.Long term No significant long term effects.

com www.wikipedia.timesonline.com .economictimes.co.k www.news.com www.newyorktimes.com www.com www.bbc.co.uk www.moneycontrol.SOURCES www.investopedia.