Download Greece

C
A
U
S
International factors:
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Increased Access to Capital at Low Interest Rates
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Heavily borrow
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Access to artificially cheap credit
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Global finance crisis in 2008
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Issues with EU Rules Enforcement
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Lack of enforcement of the Stability and Growth Pact
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Budget deficit fall between 12-16% of GDP (09/10)
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Debt more than 130% of GDP(2009)
E
S
Causes of The Crisis cont.
Domestic factors:
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High Government Spending and Weak Government Revenues
-
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Mismanagement by politicians, public sectors, employees …
Declining International Competitiveness
Type of Crisis
DEBT CRISIS:
• Years of unrestrained spending, cheap lending and failure to
implement financial reforms left Greece badly exposed when the
global economic downturn struck. The country faced a huge
sovereign debt problem and their government cannot pay back
without help.
Impact on The Aggregate
Economy
•
=> C I NX G => AD
AFFECTED AGGREGATE ECONOMY
• Budget Debt
• Affected the € value
• Affected International Stocks and other investments
• Contagion effect
Impact on The Aggregate
Economy cont.
• High Unemployment
• Decrease in Y
• Low Level of Growth
• High Inflation
The Impacts of the Crisis on the Greek Economy
•
The Decline of the Real GDP Growth Rate and Increase in Sovereign Debt
Large increase in Unemployment Rate
Inflation
Volatility in Currency and Stock Markets
With:
Real GDP
Growth Rate
What policies should be implemented?
Unemployment
Inflation
Currency and
Financial
Volatility
Debt
Austerity Measures
Because Greece is part of
the EU, Monetary
Intervention was unviable.
On March 5th , 2010 the
Greek Parliament passed
the Economy Protection
Bill in an effort to reduce
Public Sector Spending;
especially through wage
cuts.
Changes were
planned to the laws
governing lay-offs
and overtime pay.
Public-owned
companies to be
reduced from 6,000 to
2,000 (Large
Privatization)
The Government has
also hiked taxes on fuel,
tobacco and alcohol,
and raised the
retirement age by two
years
A financial stability fund
has been created.
EU/IMF Intervention
•
On April 23rd 2010, the Greek government
requested a bailout package from the EU and IMF.
•
The deal consisted of an immediate €45 billion in
loans to be provided in 2010, with more funds
available later.
A total of € 110 billion has been agreed (where € 80
billion will be funded by the EU, and €30 billion by the
IMF) .
•The interest for the Euro-zone loans is 5% (which
is considered high for a bailout loan.
•The government of Greece has agreed to impose
even more austerity measures in exchange for the
help being provided by its EU partners and the
IMF.
After May 2010
•
• The General Government
Primary expenditures were
reduced as a share of GDP from 47.6%
deficit was reduced by 5
to 44.0%
percentage points of GDP
•
• The cyclically primary
adjusted deficit was
reduced by 7.2 percentage
points of GDP
Revenues as a share of GDP
increased from 37.3% to 39.1%
Signs of recovery
• Increase in real GDP of 0.8% in the first quarter of
2011
Recovery cont.
• Exports have grown
at an average rate
of 35%
• The current account
deficit was reduced
from 14% to 11.8%
“BUT...“
Challenges and Targets
Immediate Priorities
• Regaining the trust
• Continuation of disbursement
of the loan
• Ensuring the financing
Tools to credibility
• Ensuring to meet the fiscal target of 2011
• Additional measures
• Privatization policy for investments
QUESTIONS?
THANK YOU!