DEBT CRISIS OF GREECE

LESSONS FOR STABLE ECONOMY

  Greece's economy is the 51st largest in the world, with a nominal GDP of $209.853
billion per year.
 With a GDP of $348.349 billion per year, it is the world's 53rd largest economy in
terms of purchasing power parity.
 As of 2019, it was the sixteenth-largest economy among the 27 members of the
European Union.
BACKGROUND  According to IMF estimates, Greece's GDP per capita in 2020 is $18,168 in
nominal terms and $29,045 in purchasing power parity.
 Greece is a developing country with an economy that is primarily based on the
service (80%) and manufacturing (16%) industries, with agriculture accounting for
approximately 4% of national economic output in 2017. Tourism and shipping are
the two most important Greek industries.
GREECE CONDITION BEFORE CRISIS

GDP

• 40% - Public Sector

• 21% - Manufacturing Sector
Types - processed Portland, foods, shoes, textiles, metals, chemicals, electrical equipment, cement,
glass, transport equipment, petroleum products, construction, and electrical power.
• 15% - Tourism (as Greece attracts more than 16 million tourists each year)
• 7% - Maritime Sector
• 5% - Agriculture Agricultural output has steadily decreased in importance over the last decade from
15% to 5% Other important sectors include food processing, tobacco, textiles, chemicals (including
refineries), pharmaceuticals, cement, glass, telecommunication and transport equipment.

WORKFORCE/LABORFORCE

• 20% - Agriculture With agricultural products such as wheat, corn, barley, sugar beets, olives,
tomatoes, tobacco, potatoes, beef, dairy products and wine
• 59% - Service Sector
• 21% - Industry Food and tobacco processing, Portland, textiles, chemicals, metal products, mining
and petroleum and construction. Greece is one of the poorest countries of the European Union with
the second-to-lowest average income, after Portugal.

GREECE COMPARATIVE ADVANTAGE IS PORTLAND, TOURISM & MARITIM/SHIPPING

INDUSTRY
TIMELINE

2009 2010-2011 2012-2015 2016-2018

Greece announced Greece announced a plan Bondholders finally agreed to a  The Bank of Greece predicted the
its budget deficit would to lower its deficit to 3% of haircut, exchanging 77 billion economy would return to growth by
be 12.9% of its GDP GDP in two years. Greece euros in bonds for debt worth the summer. It only shrank 0.2% in
which is more than four attempted to reassure the EU 75% less. n July 15, the Greek 2015, but the Greek banks were still
times the EU's 3% limit. lenders it was fiscally parliament passed the austerity losing money. In 2017 they decided
Rating agencies Fitch, responsible. Just four months measures despite the to cut pensions and borden tax base.
Moody's, lowered later, Greece instead warned August 20, 2018, the bailout
referendum.
Greece's credit ratings. it might default but still the program ended. Most of the
 Otherwise, it would not receive
That scared off investors
European Financial Stability the EU loan of 86 billion euros outstanding debt is owed to the EU
and raised the cost of
Facility added 190 billion emergency funding entities
future loans.
euros to the bailout
 DOMESTIC CAUSES FOR DEBT CRISIS
GOVERNMENT SPENDING FOCUSED ON EXPENDITURE
Over past six years, while government increased 87 %, revenue only 31,21% leading to Budget deficit. In 2009 expenditure
accounted 50 % of GDP
POPULIST BUT CONTRA PRODUCTIVE POLICY
Over staffing, increasing salary government employee but poor productivity public sector & also welfare pension system is
widely considered as most generous pension system in Europe
FRAUDULENT GOVERNMENT & FISCAL INDISCIPLINE
Accumulated debts, got admitted into the Eurozone and allowed to adopt the euro without it meeting the criterion, namely the
Maastricht convergence criteria ratio of gross government deficit to gross domestic product (GDP) must not exceed 60%.
However, at time of admission, the government deficit was 126.355% the GDP! More than twice the accepted value
TAX EVASION PROBLEMS
The 3 main sources of government revenue are tax revenues, fees and charges, and other receipts. Out of all these, the most
important and significant source of revenue is taxes. However, many Greeks fail to pay their taxes. Loosing 30 Billions Euro
per year
 CORRUPTION PROBLEMS
Bribery rife, The Greek population mostly perceives the Greek government as corrupt,78% of Greeks believe that the
government is corrupt, Only 19% noted reduced corruption
INTERNATIONAL CAUSES FOR DEBT CRISIS
 USING EURO AS SINGLE CURRENCY
Since As Euro can not devaluate its currency in order to lessen it’s debt burden & to boost exports, and it has exposed the
weakness of the Greek economy in relation to other Eurozone members, most notably German. The launch of Europe’s single
currency, there have been theoretical worries about profligacy. The main fear was that free-spending countries such as Italy
might borrow excessively and pass either higher interest costs or the bill for a bail-out on to other, more frugal countries such as
Germany

 GLOBAL ECONOMIC CONDITIONS

The fall of Lehman Brothers on September 15, 2008 was followed by the decline of the global financial system poses a serious
threat to the world economic and financial sector. This financial crisis has resulted a crisis of confidence in the global financial
markets, weakening currency exchange rates, decreased purchasing power, hampered financial access, until it happened massive
termination of employment. The global financial crisis that occurred in 2008 made the world community aware of the
weaknesses in the global economic and financial system.
 https://www.youtube.com/watch?v=ULQiCN0YNmw

This video shall explain you the story behind

Greece getting into a debt crisis.
Reference- YouTube Channel - Vox
 IMPACT OF GREEK CRISIS-ECONOMIC EFFECT
 GDP DECLINE
Greek GDP fell from €242 billion in 2008 to €179 billion in 2014, a 26% decline overall. Greece was in recession for over five years,
emerging in 2014 by some measures. GDP per capita fell from a peak of €22,500 in 2007 to €17,000 in 2014, a 24% decline. The
public debt to GDP ratio in 2014 was 177% GDP or €317 billion. This ratio was the third highest in the world after Japan and
Zimbabwe. The public debt peaked at €356 billion in 2011; it was reduced by a bailout program to €305 billion in 2012 and has risen
slightly since then.
 ANNUAL BUDGET DEFICIT
The annual budget deficit (expenses over revenues) was 3.4% GDP in 2014, much meaning it had more revenue than expenses
excluding interest payments in 2013 and 2014. Revenues for 2014 were €86 billion (about 48% GDP), while expenditures were €89.5
billion (about 50% GDP).
 DEBT RATIO & INFLATION RATE RAISE
Interest rates on Greek long-term debt rose from around 6% in 2014 to 10% in 2015. Based on a debt of €317 billion, the 6% rate
represents annual interest payments of roughly €20 billion, nearly 23% of government revenues. For scale, U.S. interest is roughly 8%
of revenues. Interest rates on German bonds were under 1% in 2015.
 UNEMPLOYMENT RATE INCREASE
The unemployment rate has risen considerably, from below 10% (2005–2009) to around 26% (2014–2015). An estimated 44% of
Greeks lived below the poverty line in 2014.
 IMPACT OF GREEK CRISIS-SOCIAL EFFECT

 HOMELESS POPULATION INCREASE

In February 2012, it was reported that 20,000 Greeks had been made homeless during the preceding year As the economy has contracted
and the welfare state has declined, traditionally strong Greek families have come under increasing strain, often unable to bear the burden
of increasing numbers of unemployed and often homeless relatives. Many unemployed Greeks cycle between friends and family
members until they run out of options and end up in homeless shelters .
 REDUCE SOCIAL TRANSACTION
20 per cent of shops in the historic city Centre of Athens were empty. By 2015, unemployment in Greece had reached 26% and it was
reported by the Organization for Economic Co-operation and Development that nearly twenty-percent of Greeks lacked sufficient funds
to meet daily food expenses.
IMPACT OF US SUB-PRIME CRISIS ON GREECE
AND IMPLICATIONS ON US
• Income and savings had a downward trend worldwide after the sub-prime crisis unleased
• Volatile capital markets due to liquidity crunch resulted in lower capital flows
• Strict norms were made for banks to grand loans and rates were also increased thereby making borrowing costlier for Greece
compared to earlier.
• Overall effect was on the prime sectors –Tourism and Shipping that was major contributor to GDP
• Greek default could have implications for U.S. commercial interests. Although most of Greece’s debt is held by Europeans
(more than 80%), $14.1 billion of Greece’s debt obligations are owed to creditors within the United States. Although not an
insignificant amount of money, the relative size of U.S. creditor exposure to Greek bonds however is likely too small to create
significant effects on the U.S. economy overall if Greece were to default.
• Imbalances between current account deficit and current account surplus countries within the Eurozone are similar to the debates
about imbalances between the United States and China. These debates reiterate how the economic policies of one country can
affect other countries and the need for international economic cooperation and coordination to achieve international financial
stability
 ACTION TO RESOLVE CRISIS
 TAX EVASION & TAX COLLECTION IMPROVEMENT
The OECD estimated in August 2009, the size of the Greek black market to be around €65bn (equal to 25% of GDP), resulting
each year in €20bn of unpaid taxes. This is a European record in relative terms, and in comparison almost twice as big as the
German black market (estimated to 15% of GDP). A rapid increase in government revenues through implementing a more
effective tax collecting system
 ANTI CORRUPTION COUNTER MEASURE
When calculating all sorts of corruption in Greece, the total amount is estimated to be roughly €3.5 billion per year (equal to
1.75% of the Greek GDP). Compared with corruption levels measured by Transparency International for 160 other countries,
Greece ranked at 49th in 2004, was down at 57th in 2008, and slumped to 71st in 2009. The government elected in October 2009
had on its agenda to increase the fight against fakelaki and other forms of corruption.
 IMPROVING ECONOMIC & BUSINESS CLIMATE
Note that the reasons for Greece's good performance were the implementation of regulatory reforms in the following three areas:
It reduced the time required to obtain a construction permit by introducing strict time limits for processing permit applications at
the municipality.
It strengthened investor protections by requiring greater immediate and annual disclosure of material related party transactions
It enhanced its insolvency process by abolishing the conciliation procedure and introducing a new rehabilitation proceeding .
AUSTERITY PACKAGE AND REFORM LAUNCH
IMPLICATIONS TO INDIA

 As we have seen, Greece in reality has little economic trade with

India .The bottom line is India's economy is far more connected
and dependent on European American & Middle-Eastern
Countries than back in 1982. So another financial crisis in
Europe will impact India
 World still holds the US-Dollars as the majority of their foreign
exchange reserves, the Euro is a close second (about 25% of
holdings)
 Since the world reserve currency also acts as the international
pricing currency for oil, gold, and other products traded on world
markets, the decline of the value and the confidence in the Euro
could have a devastating impact on all aspects of global trading.
 In 2019, Greece exported $123M to India. The main products that
Greece exported to India are Aluminum Foil ($11.7M), Scrap Iron
($10.4M), and Raw Cotton ($9.52M). During the last 24 years the
exports of Greece to India have increased at an annualized rate of
5.17%, from $36.7M in 1995 to $123M in 2019.
 GREECE- A REMARKABLE ECONOMIC RECOVERY

 After a decade of economic torment, acid reforms and mounting sacrifices that cost the country half a million brains, Greece
seems to have finally got back on its feet.
 However like every other country Greece too was hit by the covid 19 pandemic which again disrupted their functioning.
Greek output shrank 9.0% in 2020 when a cascade of lockdowns from the COVID-19 pandemic stubbed out economic
growth and battered the vital tourism sector
 In 2018, Greece successfully exited its third and final bailout program, after having been forced to demand an astronomical
€289 billion in financial assistance from the EU, European Central Bank and International Monetary Fund, known as the
troika.
 This marked the beginning of a return to financial normalcy. This virtuous trend continued in 2019, when capital controls
were lifted and market confidence started rising, with the country’s 10-year bond yield plummeting to 0.9% in February, in
comparison to 1.59% for the equivalent U.S. bond at that point
 Consumer confidence has also returned, helped by the unemployment rate dropping from 27.8% to 16.6%
 The country expects to raise 2.2 billion euros in 2022 from the privatization of ports, real estate assets and national
motorways, the budget said.
TAKEWAYS

 Live within your means.

 Avoid over borrowing or over bailout implement good monetary policies.

 Develop your own strategy; Coming out from your own challenges & experiences.

 Depend on your natural competencies/Resources.

 Delaying in clearing your debts is cost.

Conclusion

At the end of the day, the citizens are the people who pay. Any progress made will only be gradual and
will certainly not come easy. For everyone, the Greek debt crisis serves as a wakeup call for structural
reform which, despite the inevitability of hard times ahead, can serve as a catalyst for targeting a more
suitable growth model in the long run.

Thank You