1. IMPACT OF GREECE CRISIS

2. INTORDUCTION
• Historically, financial crisis tend to lead to sharp economic downturns, low
government revenues, widening government deficits, high levels of
debt, pushing many governments into defaults. This is called SOVEREGIN
DEBT CRISIS.
• GREECE is currently facing this, it accumulated high levels of debt during
the decade before the crisis, when capital markets were highly liquid. As
the crisis has unfolded and there was liquidity crunch in world economy,
Greece may no longer be able to rol over its maturing debt obligations
• The Eurozone is facing a serious sovereign debt crisis. Several Eurozone
member countries havehigh, potentially unsustainable levels of public
debt. Three—Greece, Ireland, and Portugal—haveborrowed money from
other European countries and the International Monetary Fund (IMF)
inorder to avoid default. With the largest public debt and one of the
largest budget deficits in theEurozone, Greece is at the center of the crisis.
The crisis is a continuing interest to Congress dueto the strong economic
and political ties between the United States and Europe.

3. Build – Up To The Current Crisis
• Between 2001-2008, Greece reported budget
deficits averaged 5% per year, compared to
Eurozone average of 2%.
• Also, its current account deficits averaged to 9%
per year compared to Eurozone average of 1%
• Greece funded these twin deficits by borrowing
in international capital markets, leaving it with
chronically high external debt (115% of GDP in
2009)
• Some of the facts which can be depicted from
following charts

4. How Country Debts And Budget
Deficits Compare?

5. Eurozone: Credit Spreads

6. Greece: Public Debt

7. Debt And Deficit Indicators, Selected
Countries

8. Reasons For Current Economic
Situation
• WORLD ECONOMIC CRISIS
 The income and savings had a downward trend worldwide after
the subprime crisis unleashed. This has educed Revenues for the
country.
 The world market had started recovering but we can say they
are now in bullish run, these haky Stock Marketshad a
cumulative effect.
 The reduced savings and lack of confidence among investors has
resulted in lower Investment Flows
 After the sub-prime bubble burst, tricter requisites or bank
loans / higher ateshave been followed globally.
This all had a cumulative negative effect as;
 There was a Drop of tourist arrivals.
 Also, Negative impact on exports and international sea transport

9. • SPECULATION
 As Euro was the second best Foreign exchange reserve
currency (with approx 25% holdings), there was increased
Hedge funds betting against Greece / Euro
 Numerous negative media reports stating the financial
status of the country had pushed it towards the danger
zone.
 Unclear messages by foreign officials / executives have
further added fuel to the situation.
 The 3 biggest rating agencies downgraded Greece,
Greece’s rating with Moody’s stands at A2 and with Fitch
and S&P two notches lower at BBB+
 The borrowing rates for Greece skyrocketed.

10. Reasons For Current Economic Situatio
• The 3 biggest rating agencies downgraded Greece,
Greece’s rating with Moody’s stands at A2 and with
Fitch and S&P two notches lower at BBB+.
• The borrowing rates for Greece skyrocketed.
• Euro was hit as fears for crisis expansion in other
European countries including Portugal, Ireland, Italy
and Spain (“GIIPS”).
• And so the whole Eurozone was put to test.
• The panic grew worldwide, when the Greek economy
makes up only 2.7% of the Eurozone GDP and 3.9% of
its debt.

11. • COUNTRY’S STRUCTURAL PROBLEM
 Excessive Expenditures : Over the past 6 years, while the government
expenditures increased by 87%, revenues grew only by 31%.
 Mismanagement : In 2009, Greek government expenditures accounted
for 50% of GDP. A continuous over-staffing and poor productivity in
the public sector was encountered.
 Unregulated Labor Market : Greek industry is suffering from declining
international competitiveness. Wages in Greece have increased at a
5% annual rate since the country adopted euro, while exports to its
major trading partners during the same period has grew only by 3.8%.
 Obsolete Pension System : An ageing population (aged over 64), in
Greece is expected to rise from 19% in 2007 to 32% in 2060 ould place
additional burdens on public spending and what is widely considered
as one of Europe most generous pension systems, as entitlement to a
full pension requires only 35 years of contribution, compared to 40 in
many other countries.

12. Impact of Greece Crisis

13. Impact On Global Financial Market
• CONTAGION
If Greece defaults, there is a risk of contagion to
other Southern European countries, including
“GIIPS”), for example, that the low levels of
national savings in Greece and Portugal put these
countries in the weakest financial position, at
7.2% of GDP and 10.2% of GDP respectively,
compared to an EU average of approximately
20%.Complex Financial Instruments & Financial
Regulations

14. • COMPLEX FINANCIAL INSTRUMENTS & FINANCIAL
REGULATIONS
Greek governments had successively, underwritten by
prominent financial institutions including Goldman Sachs,
used complex financial instruments to conceal the true
level of Greece’s debt, for example, the government is
alleged to have exchanged future revenues from
Greece’s highways, airports, and lotteries for up-front cash
payments from investors. Likewise, it is reported that the
Greek government borrowed billions by trading
currencies at favourable exchange rates. Because these
transactions were technically considered currency swaps,
not loans, they did not need to be reported by the Greek
government under EU accounting rules.

15. European Integration
“GREECE'S CRISIS HAS BROUGHT TO LIGHT
IMBALANCES WITHIN THE EURO ZONE”
Mismatch between the EU’s advanced economic
and monetary union and an incomplete political
union. Even within the economic areas, where the
EU is more tightly integrated, the Euro zone has a
single monetary policy but 16 separate (if loosely
coordinated) national fiscal policie

16. Major Implications & Reasons For U.S
• LOSS OF INVESTORS CONFIDENCE
– Many expect that if investors lose confidence in
the future of the Euro zone and more current
account adjustment is required for the Euro zone
as a whole, the value of the euro will weaken. A
weaker euro would likely lower U.S. exports to the
Eurozone and increase U.S. imports from the
Eurozone, widening the U.S. trade deficit

17. • LARGE FINANCIAL STAKE IN EU
The United States has a large financial stake in the
EU. The EU as a whole is the United States biggest
trading partner and hundreds of billions of dollars
flow between the EU and the United States each
year

18. Major Implications & Reasons For U.S.
• GLOBAL RECESSION
The global recession has worsened the government budget
position of a large number of countries. for example, some
have argued that there are strong similarities between
Greece’s financial situation and the financial situation in
the United States. Like Greece, it is argued, the United
States has been reliant on foreign investors to fund a large
budget deficit, resulting in rising levels of external debt
and vulnerability to a sudden reversal in investor
confidence. Others point out that the United States, unlike
Greece, has a floating exchange rate and its currency is a
reserve currency, which alleviates many of the pressures
associated with rising debt levels.

19. • IMBALANCE OF CURRENT ACCOUNT
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
achieveinternational financial stability

20. • U.S COMMERCIAL INTERES
– 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. GLOBAL RECESSION
IMBALANCE OF CURRENT ACCOUNTSU.S
COMMERCIAL INTEREST www.capitalvia.com
12Global Research Limited

21. Major Implications & Reasons For
India

22. • DEPENDENCY OF INDIA TOWARDS OTHER
NATIONS
Although USA & India trade with Greeks is small
but think about the American / Euro Real estate
market and world financial crisis back in 2008.
Like, back in the 70's & 80's the collapses in real
estate prices in American and collapse of the
American Savins and Loan industry had little
impact on India because there was No ( or little)
Indian IT & Back Office Outsourcing industry in
1981.

23. • ECONOMIC TRADE BETWEEN INDIA & GREECE
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

24. Major Implications & Reasons For
India
• SLOWDOWN IN OTHER COUNTRIES
The Greece crisis has been viewed as the tip of an ice
burg which will lead to another slowdown in growth
from Europe which would impact India. The poor USA
economy and decline in tax revenue is resulting in
many financial problems. This too can lead to a
decline in business for India. A slow down in China
results in much less demand for commodities. A
decline in commodities prices results in a decline of
those markets dependent upon commodities like the
middle-east, Brazil, Canada, Russia & Australia. The in
turn will spend less buying the goods and services
from India and other trading partners.

25. • EURO AS THE 2ND BEST FOREIGN EXCHANGE
RESERVE
World still holds the US-$ 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

26. Why Bears Were Powerful In Past Few
Days..!!!!!
Stock market is more depending on the behaviour and the
expectations of investors in the market. What small
corrections are coming in the market, are the repercussions
of the European crisis that well understood, however, if you
apply fundamentals it is quite evident that Indian
companies having sound financial position, good order
books, increasing profits, increasing sales and doing good
business domestically or globally, will (has)
definitelyhedge all these risk and in near time will be able
to generate sizable earnings.tocks become more risky, not
less, as their prices rise - and less risky, not more, as their
prices fall he fact lies in the opamine Effecthich is created in
the minds of the people forces them to think irrationally