GREECE A CASE STUDY Availability of capital Formation of Euro Zone Savings doubled to $70 trillion dollars in 5 yrs Investors looking for alternatives Effect of excess capital Low cost of Borrowing- paid to borrow !!! Increased social security expenses High cost of Production Incompetent pricing in global market International Trade Imbalance Loss of Investors Confidence Loss of Investor Confidence Non compliance of T & Cs - Budget Deficit 3% of GDP - Debt level 60% of GDP AAA+ was that right ? Availability of cheap debt Capital inflows were not used to help the economy grow Beginning of the global financial crisis Shipping and tourism industry affected by the changes in business cycle Debt began to pile up rapidly Availability of cheap debt Capital inflows were not used to help the economy grow Beginning of the global financial crisis Shipping and tourism industry affected by the changes in business cycle Debt began to pile up rapidly Pre 2008 Era Global financial crisis of strained public finances Fear of European sovereign debt crisis started in early 2010 Difficulty in raising funds Bailout package requested from EU & IMF Debt rating downgraded to Junk status. Worldwide impact on stock markets Global financial crisis of strained public finances Fear of European sovereign debt crisis started in early 2010 Difficulty in raising funds Bailout package requested from EU & IMF Debt rating downgraded to Junk status. Worldwide impact on stock markets Post 2008 Era Possible spread to other Countries Bailout package Rescue package European Stability Mechanism European Commercial Bank Austerity Measures Measures adopted Greece Crater 1. Bailout Package Bailout Package 2. Rescue Package Rescue Package ESM 3. ESM ESM 4. ECB ECB Austerity Package Austerity Income Tax 45% 40% VAT 23% 19% Luxury tax increased by 10% New duties levied on Petrol New tax is levied on electricity charges Duties on imported cars increased by 30% Big cuts in public employee expenditures Privatization by disinvestment Reduction in number of Municipalities Increase of retirement age from 60 to 65 Sale of Assets to Other Nations Conversion of Euro into the Earlier Currency The Drachmas Other measures Unemployment rate at 19.8% Highest since Greece joined Eurozone 230 thousand people lost job in last for age group, 22.6% for 25-34 Unemployment benefit only for 1 Year < Euro 500 per month 280k receive state benefits Of the total 811k unemployed 7 out of 10 considering working abroad Unemployment rate to reach 20% in one year Economy s biggest problem 5% long-term unemployed 65,000 Retail stores closed Private Sector wages cut by 10-20%, Govt % Consumption fell 8.6%, HH reduced spending by 1.6B euros Consumption is Greek economy s driving force, production lags behind NGO support critical Significant increase in the number of people relying on NGO s 25% increase in homelessness At the main canteen, 3500 people/day come for food & clothing, compared to 100 people/day 5 years ago Average age of people seeking help reduced to 45 from 60 in 2 years Debt crisis causes political turmoil 87% said they are unhappy with the quality of their lives > 100k supporters/day irrespective of the parties Support for being part of Euro came down to 58% from 72% Change in Leadership PM George Papandreou quits in Nov 2011 Lucas Papademos to lead the new unity Govt. No party have enough support to win Rejection of the current political system has added to the uncertainty EXPORTS INDIAS EXPORT PROFILE RegionFY 2010 (%)FY 2011 (%) EU Countries Africa Asia WANA ASEAN North America Greece FOREIGN DIRECT INVESTMENT FOREIGN INSTITUTIONAL INVESTMENT US mn $FII Flows , , , , , (15,017) , ,422 FII MOVEMENT Financial Year FII Flows (US mn $) , , , , , , , , , ,422 EXCHANGE RATES Rating agencies suffer from a conflict of interest Role of the English language press questioned Hedge fund managers launch bearish bets CONTROVERSIES WILL GREECE SURVIVE?