GREECE DEBT CRISIS

INTRODUCTION
 27th largest economy in the world by nominal GDP
and the 33rd by PPP, according to the data given by
the IMF for the year 2008
 Greece is a member of the OECD, the WTO,, the
EU and the Eurozone
 The Greek economy is a developed economy with
the 22nd highest standard of living in the world.
 The public sector accounting for about 40% of
GDP. The Service sector contributes 75.7% of the
total GDP, industry 20.6% and agriculture 3.7%.
2010 DEBT CRISES
 Greece’s debt crisis is reaching a critical
period as huge debt repayments are due in
the coming weeks.
 For Greece, this debt crisis is likely to be in
a period of prolonged economic stagnation as
government spending is cut dramatically
GREEK WEAKNESS
 Greek government had been lying about the size of its
budget deficit last year.
 The scale of the true budget deficit, caught investors off-
guard and led to fears that the Greek government would
default on its debt.
 These fears led to a sharp depreciation of the euro and
highlighted many of the weaknesses of the European
common currency.
 Moreover, the euro has proven to be a major problem for
Greece, as it cannot devalue its currency in order to
lessen its debt burden and to boost exports, and as it has
exposed the weakness of the Greek economy in relation to
other Eurozone members, most notably Germany.
GERMANY HOLDS THE KEY

 Most EU leaders, as well as the governments

of most EU member states, support a bailout
package for Greece to help it survive this debt
crisis.
 However, Germany has proven to be highly
reluctant to fund such a bailout, as a majority
of German voters oppose such a move
 If Germany blocks an EU bailout for Greece,
there will be little choice for the Greek
government but to turn to the IMF
THE GREEK CRISES

 The Greek government has a very large fiscal

deficit adding to an already huge level of
debt
 The problem is huge current account deficit
 Which means the Greek economy needs to
attract very large inflows of capital if the
economy isn’t going to face a sharp contraction
of domestic demand
 Greek has no independent monetary policy or
ability to devalue its exchange rate as having
membership of the euro zone
THE GREEK CRISES – IMPLICATIONS
FOR THE EUR AND UK
 The EUR has underperformed other currencies
in recent weeks as the crises has raged
 This underperformance is greater than would
have been suggested by moves in other
financial prices
 And appears to reflect a significant increase
in the perceived riskiness of Euro Zone
 The problems are severe and speak to a wider
issue facing the Euro Zone
 The UK’s fiscal issues now look less serious in
relative, but not in absolute, terms
WHAT TO WATCH FOR
 In the past, Germany would have given in to
pressure from France and other European
Union member states, but a more confident
and assertive Germany is beginning to stand
up for its own interests within the European
Union
REFERENCES
 Economy of Greece ,
http://en.wikipedia.org/wiki/Economy_of_Greece
 ISA Global , 2010,
www.isa-world.com/reports_forecasts/global_upda
te
 economics21,
www.economics21.org/.../painful-arithmetic-greek
-debt-default
 ECB,
http://www.voxeu.org/index.php?q=node/4384