The Greek economic crisis.

INTRODUCTION• The country has always been more famous for its crippling debt

crisis than even its big fat Greek weddings or the magical ( and delicious) Greek yoghurt

• The debt crisis can be explained as being the end result of some hasty and dubious decision making from the European union which has always attracted criticism from many eminent economists in the past

• The Greek economic crisis is not a recent happening but dates back to centuries earlier

• The decisions by the EU in 2001 have been backfiring ever since and this is a testimony to that fact

SO WHAT REALLY HAPPENED IN 2001 ? Greece wanted to join the prestigious Eurozone ,

led by the Germans . In order to get entry , Greece required a certain financial strength in its national budget .

In order to do so , Greece manipulated its national accounts to show a favourable financial position ; one which was really different from its actual position

Once it got the entry , there was great pomp and show in Greece to celebrate this colossal achievement . Entry to Eurozone was a huge step in gaining ACTUAL financial stability , contrary to the current situation

As a way of celebrating , Greece started to make some erratic changes in the monetary policy ; there were some unnecessary expenses added to the already crumbling govt budget

The remunerations of publics sector increased significantly , and were now way higher than private sector .

The pension schemes were amended and new schemes increased pension expenditure of govt by more than a billion

This situation was worsened by the already drastically reducing tax revenue , as tax evasion was a common practice

The loans taken up by private companies and households was also a huge concern

CAUSES OF THE GREEKECONOMIC CRISIS

EATING MORE THAN THEIR APPETITE : The Greeks have had a history of bringing problems upon themselves mostly due to borrowing more money than necessary ; and also by spending more than sufficient . This same thing caused turmoil in the 20th century and is haunting them again

LENIENT GOVERNMENT POLICY : The government has always been a bit of an extremist . There has either been a sort of tyrant rule or a way too liberal system of policies , which has kept the revenue to an all time low . The tax collection policy has too many loopholes , there is little expenditure on development , public sector banks are suffering due to NPAs

ALTRUISTIC APPROACH : The Greeks are too selfish to even consider the impact of their foolish monetary policies on the trade in Eurozone . They consider that it is the duty of Eurozone and the IMF to bail them out of these situations in which they seem doomed

NOT FORECASTING THE FINANCIAL POSITION : The financial statements of the country , once found to be forged , were then analysed to find the real financial position of Greece . The revelations were so shocking yet obvious that had the Greeks cared about analysing their position and taking some remedial steps, the debacle and fiasco today would not have seemed too sudden and they would have been able to keep it under check

The personal borrowings have reached an insurmountable 126% of GDP and the government borrowings have also reached over 100% of GDP

There has been a constant fall in GDP and inflation rates have risen due to reduced productivity , which has , in turn , led to hefty unemployment

The share market has been constantly on the fall since there is no money in the market to invest .

Beyond Greece, the threat of economic instability in SEE is real. The economic situation of Greece’s neighbours remains fragile due to the lingering effects of the European financial crisis. The World Bank notes the region suffered a double dip recession over the last five years with an average regional GDP contraction of 5.9 percent in 2009, and another 1.2 percent in 2012 .

SEE’s heavy dependence on European markets resulted in negative trade and associated financial spill over effects. As it struggles to regain its economic stride, SEE continues to experience sluggish growth rates and poor market and investor confidence

IMPACT ON SOUTHEAST EUROPE

When it comes to trade between SEE and Greece, it has declined over the last years, and Greece is not anymore among the main destinations for the SEE`s exports. However, Greece remains the second biggest importer in most countries of SEE.

The economic recession in Greece has had a negative impact on remittances to SEE countries, mainly for Albania, Bulgaria and Serbia . The return of these economic migrants to their origin countries is another risk that put more stringent pressure to the weak economies in the region.

GREECE’S ROLE IN SEE AND ITS TRADE

BRIEF INFO ABOUT THE DISTRIBUTION OF GREECE’S DEBT AMONG COUNTRIES , PRIVATE PLAYERS AND INTERNATIONAL AGENCIES

In the short term, financial markets are likely to remain volatile. In recent days, U.S. stocks have fallen, although not as much as in Europe. Still, further declines could be expected to cut into consumer confidence and possibly spending.

At the same time, oil prices have retreated again, in part because of expectations that Europe’s trouble will slow demand a bit. Lower energy costs would, on net, be a positive for American consumers, although that may prove to be short-lived

IMPACT ON USA

The volume of American exports to Greece is a speck, totalling $772 million last year out of total U.S. merchandise exports to the world exceeding $1.6 trillion, or less than .05%. A prolonged Greek debt crisis, however, is likely to slow an already sluggish European economy, which in turn could crimp U.S. exports more significantly. A little more than a fifth of American exports are to Europe, and many U.S. companies with operations on that continent already have felt a pinch to their earnings from weaker sales and the strong dollar, a result partly of the European Central Bank’s pumping  more money into the economy.

The U.S. has very little direct exposure to the Greek debt crisis. At the end of last year, U.S. banks had claims of about $12.7 billion on Greece, including its banks. American taxpayers have some limited exposure in that the U.S. is a shareholder of the International Monetary Fund, which is a creditor of Greece. But under the IMF’s arrangement, it is expected to be paid back in full eventually.

IMPACT ON INDIAN ECONOMYThe whole scenario will have an indirect impact on India. Since India is not directly exposed to Greece in terms of trade ties, it is less likely to affect India. However, if the Eurozone is hit by the crisis then probably India will have to bear the consequences as well.

Greece is infusing instability in the European markets and is reluctant to agree to bailout terms of IMF, which in turn is hampering investors confidence in the European market ( as currency stability is likely to get affected ) affecting the whole Euro Zone and driving their markets ( by decreasing liquidity ) and in turn GDP down.Euro Zone happens to be major importer of goods produced in India and recession in the destination means less exports for India which implies decrement in our GDP.

1.Exports: Europe is India's largest trading partner with USD 129 billion of merchandise engagement in 2014-15. India's merchandise exports has not been in prime health this year and the crisis in Europe will only deteriorate the prospects.2.Capital Movement: After Greece doesn't meet its deadline, the interest rates will rise all across Europe because the economic health of countries like Spain and Italy is also not very good (so financial institutions will not lend easily). All this will have an outcome on the Euro. And at the present moment even experts are unsure about how the foreign investors will relocate their portfolios. This will result in capital inflow and outflow in and out of India. While capital inflow is good as it brings money into the country, capital outflow is undesirable as assets move out of the country. But we'll have to wait and watch for now.

SOURCE : bloomberg.com

MAJOR IMPACT AREAS IN INDIA

THE BAILOUT PLAN • Greece’s current debt stands at $110 billion . In order to make

the country survive the crisis , they have to be bailed out from the huge financial burden

• The EU has agreed to fund its debt repayment to the extent of $ 30 billion , which means that the rest 80 billion will have to be financed by EU countries and the US , because if Greece goes eventually bankrupt, it will have a devastating effect on the international market ; one which would be bigger than even the crisis of 2008

• The terms of this financing include Greece agreeing to make changes to its trading and internal policies

• This simply means that Greece will now have to be more liberal towards international trade, make stricter taxation policies, ensure proper punishment for tax evasion accused, reduce the pension policy plans for the employees of central government and reduce their pay scale to that of private employees . They will have to increase expenditure on infrastructure

• The situation and the conditions put forward can be held as similar to those put forward in front of India in 1991 .