ANTAR TURGAY CIHAN COLPAN NILAY UYGUN SEVIL KARABULUT ZEYNEP KARAKAYA

GREECE

International Finance 30.06.2012

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HISTORY OF GREECE
Ancient Greece was a civilization belonging to a period of Greek history that lasted from the Archaic period of the 8th to 6th centuries BC to the end of antiquity. Immediately following this period was the beginning of the Early Middle Ages and the Byzantine era. Greek culture, especially philosophy, had a powerful influence on the Roman Empire, which carried a version of it to many parts of the Mediterranean region and Europe, for which reason Classical Greece is generally considered to be the seminal culture which provided the foundation of modern Western culture.

GENERAL VIEW BEFORE EU

Population: 10 million Public sector accounting for about half of GDP GDP - composition by sector: Agriculture: 8.3% Industry: 27.3% Services: 64.4% Preparations for Euro: cut its budget deficit below 2% of GDP tightened monetary policy inflation fell below 4% and than reached %2,6 Remaining Major Challanges: Further restructuring of the economy Reduction of unemployment

GREECE ECONOMICAL FIGURES BEFORE EURO

GDP - real growth rate: 3% Inflation rate (consumer prices): 2.6% Unemployment rate: 9.9% Revenues: $45 billion Expenditures: $47.6 billion, incl. capital expenditures of $NA Industries: tourism; food and tobacco processing, textiles; chemicals, metal products; mining, petroleum Industrial production growth rate: 1% Exports: $12.4 billion Imports: $27.7 billion Debt - external: $41.9 billion Economic aid - recipient: $5.4 billion from EU

HISTORY OF GREEK ECONOMY

Standards of living

1833-1911 1826 1843 Greek Miracle 1860 1893 Maastricht Treaty GDP growth %3,2 %12,3 devaluation of Drachma

1980s;

%1,7

1990s; high inflation, public deficit, stagnation adjustment program for EU

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1 January 1981 Membership of the EU reaches double figures when Greece joins Greece was accepted into the Economic and Monetary Union of the European Union by the European Council on 19 June 2000

In 2004, Eurostat revealed that the statistics for the budget deficit had been under-reported so Greece entered the Eurozone through "falsified" deficit numbers. A currency swap arranged with Goldman Sachs allowed Greece to hide $1 billion of debt, however, this affected deficit values after 2001 (when Greece had already been admitted into the Eurozone) and is not related to Greeces Eurozone entry.

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SHADOW ECONOMY The Size and Development of the Greek Shadow Economy and the Average one of 21 OECD countries over 1990 to 2010

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TAXES
Weak tax collection forms a big part of Greeces fiscal problem. In June 2011, the Ministry of Finance reported that tax arrears amounted to 41 bn. Of that number, 90% came from 6,500 people and from 8,200 corporations that owe over 150,000 each.
Variable Year Germany Greece OECD - Total TAX REVENUE AS A PERGENTAGE OF GDP 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 34,8 36,0 36,9 36,9 37,1 37,2 36,5 36,2 36,5 37,3 37,5 36,3 35,6 35,8 35,0 35,0 35,6 36,0 36,4 26,2 26,3 27,1 27,6 27,9 28,9 35,9 30,3 32,0 32,9 34,0 32,9 33,6 32,0 31,2 31,9 31,2 31,8 31,5 33,1 33,6 33,8 34,3 34,2 34,6 35,0 34,9 34,9 35,2 35,3 34,8 34,5 34,5 34,4 35,0 35,1 35,2 34,6

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EXPENDITURE

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UNEMPLOYEMENT

Year 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 0 1 2 3 4 5 6 7 Unemployment 2,7 3,9 5,6 7,6 7,9 7,6 7,1 7,1 7,4 7,2 6,8 7,4 8,4 9,3 9,3 9,1 9,8 9,8 11,2 12,1 11,4 10,8 10,3 9,7 10,5 9,9 8,9 8,3 rate

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UNEMPLOYEMENT
Long-term unemployment among young people: the risk of social exclusion

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BRAIN DRAIN

Although there are no statistics for the numbers leaving the country, research from 2010 suggests that nearly 85% of Greeks studying abroad were not planning to return.

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IMPORT EXPORT

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PRODUCTION
The economy of Greece mainly revolves around the service sector (85.0%) and industry (12.0%), while agriculture makes up 3.0% of the national economic output. Important Greek industries are tourism and merchant shipping, while the country is also a considerable agricultural producer (including fisheries) within the union. As the largest economy in the Balkans, Greece is also an important regional investor.

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CURRENT ACCOUNT
Greek industry is suffering from declining international competitiveness. The high relative wages and low productivity as a primary factor. The wages in Greece have increased at a five percent annual rate since the country adopted the Euro, about double the average rate in the Euro zone as a whole.

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REVENUE - INCOME
When analysts discuss how the Greek economy may grow, there is an inevitable emphasis on tourism. But tourism has been in steep decline in the last decade. In 2000, Greeces tourism revenue was 10 bn (based on customs data). Ten years later, it had fallen to 9.6 bn, a 4.5% drop. But if we factor in inflation, revenues from tourism have dropped 28% since 2000, reflecting the structural flaws in Greece s tourism industry, which relate, getting more tourists who spend less money.

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REVENUE - INCOME
Shipping is Greeces other major export. In 2000, Greece s revenues from shipping netted 4.6 billion. By 2010, that number had fallen to 4.5 bn. Adding inflation means that the drop has amounted to 27%, although some years were better than others. The main problem is that from a trade perspective, shipping affects both sides of the equation due to money spent to buy ships and on shipping related services. When we take out the outflow of money, the net effect for Greece has been declining.
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DEBT
Debt fuelled consumption creating imbalances between tradable and non tradable sector

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THE DEBT TO GDP RATIO

The debt to GDP ratio reached 100% of GDP by 1993 and the central bank resorted to printing money to pay the bills, unleashing 20% inflation but when Greece entered the Eurozone, it was unable to print money and more than that European Central banks priority was to fight aganist inflation therefore they were not able to balance the debt

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 To keep within the monetary union guidelines, the government of Greece had also for many years misreported the country's official economic statistics.At the beginning of 2010, it was discovered that Greece had paid Goldman Sachs and other banks hundreds of millions of dollars in fees since 2001, for arranging transactions that hid the actual level of borrowing. The purpose of these deals made by several successive Greek governments, was to enable them to continue spending, while hiding the actual deficit from the EU. The revised statistics revealed that Greece at all years from 2000-2010 had exceeded the Euros stability criteria, with the yearly deficits exceeding the recommended maximum limit at 3.0% of GDP, and also the debt level clearly exceeding the recommended limit at 60% of GDP.
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DEFICIT

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THE DEBT TO GDP RATIO

The failures in collecting taxes and in reigning in government spending were reflected in the fast accumulation of public debt. The accumulation of public debt through successive budget by the end of 2009 GDP ratio had risen to 127 percent, and the budget deficit for the year is estimated at 15.4 percent of GDP.

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GROWTH- CURRENCY
After Greece entered the Eurozone, Greece suddenly found itself with a solid, reliable currency. Its government and businesses could borrow at lower interest rates than before. The country boomed, with real GDP growth topping 3.8% for eight straight years. The reality was more complicated. Greece now had a solid currency but it wasn't Greece's currency. The euro was managed by the European Central Bank. The country kept running big deficits in the boom years.
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MILESTONES OF THE GREEK CRISIS;

January 15 2010: The Greek Stability and Growth Programme
Its main elements on the revenues side were: Measures to reduce tax evasion and improve tax collection-estimated to be worth 1.2bn, 0.5% of GDP; Reduction of social contribution evasion - to raise 1.2bn, 0.5% of GDP; A special taxes on profitable companies- raised 0.87bn, 0.4% of GDP; Acceleration of EU receipts for the public investment programme - to raise 1.4bn, 0.6% of GDP; Increase on several types of indirect taxes.
Crisis

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ECONOMICAL GROWTH

After 14 consecutive years of economic growth, Greece went into recession in 2008

Crisis

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MAIN CAUSES OF THE GREEK FISCAL CRISIS

Internal Causes:
Budget deficit for : 2009 was 15.6% of GDP. Declining external competitiveness: Caused by EMU entry Lack of confidence on the governement Lack of structural reforms on reforms regarding labor market, social security and market competition

Crisis

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MATURITIES OF THE GREEK BONDS;

High possibility of the sovereign default between 2011-2017: investors required higher interest rates for new money.

Crisis

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External Causes: No signal from Eurozone governments about their support : Maastricht Treaty EU is a monetary union not an economic one with a Federal Budget: monetary policy but not any economic policy as supranational. Greece and Greeces major trading partners in the Balkan Peninsula were also hit by the 2007 global crisis which was originating from the US sub-prime loan market crisis.

Crisis

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On government expenditures side; A 10% cut in general government expenditure on salary allowances - expected to save 0.65bn, 0.3% of GDP; A recruitment freeze in the public sector for 2010 to save 0.15bn, 0.1% of GDP; Implementation of a 5:1 retirement/ recruitment ratio for public sector employees from 2011 onwards. Termination of many short-term contracts in the public sector, to cut operating expenditures for ministries 10% -estimated to save 0.12bn, and to result in a cut of 7k-8k teachers on short-term contracts; Reduction in the budget item linked to social security and pension funds by 10% -to save 0.54bn, 0.2% of GDP;
Crisis

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MILESTONES OF THE GREEK CRISIS;

March 2010: Greek government entered in negotiations with the EU commission and the other EMU member-countries in order to agree on a rescue plan. On 25 March 2010, an agreement was reached for a rescue plan, which led bilateral loans to Greece from other EU countries and loans from IMF at interest rates, which were lower than the market ones.

Crisis

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The main features of this rescue plan on the revenue side were: Value-added tax bands to be raised - by 4.5-5.0% for the lowest, 9-10% for the medium band and 19-21% for the standard band. Higher VAT rates are estimated to result in 1.3bn of new revenues (0.55% of GDP); A substantial increase in indirect taxes of gasoline, tobacco and alcohol along with higher electricity charge; An increase of property taxes, taxes on luxury goods an on offshore companies and real estate. On government expenses: Further reductions on total salary payments to employees of the public sector; A freeze on state pensions Public sector works to be cut 5% (to save 0.5bn) and education spending to be cut 0.2bn.
Crisis

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MILESTONES OF THE GREEK CRISIS;

May 2010: Rescue plan was revised in order to cover targets set by the EU commission and the IMF. The main features regarding the effort to increase tax revenues : A further rise of 2% in the main VAT rate to 23%. The two lower VAT rates will also be raised (by 1% for the current 10% rate and by 0.5% for the current 5% rate). The government expects the new VAT increases to generate additional revues of 0.80bn (or 0.3% of GDP) in 2010 and 1.00bn (or 0.4% of GDP) in 2011. This was coupled by measures to broaden the VAT tax base;

Crisis

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MILESTONES OF THE GREEK CRISIS;

May 2010: A further increase in the indirect taxes on fuels, tobacco products and alcoholic beverages, expected to bring in additional revenues of 0.45bn (or 0.2% of GDP) in 2010 and 0.60bn (or 0.3% of GDP) in 2011 Imposition of further taxes on luxury goods, on firms profits (a one-off tax) Introduction of a green tax. Eurozone leaders and the IMF announced a three-year package of 110 billion at market-based interest rates: 80 billion :Eurozone countries 30 billion : IMF
Crisis

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MILESTONES OF THE GREEK CRISIS;

May 2010:
At the same time, EU leaders also created a new European mechanism for providing financial assistance to Eurozone member states under market pressures. The mechanism consists of two temporary, three-year lending facilities that could make loans totaling 500 billion (about $718 billion) to Eurozone members facing debt crises.

Crisis

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BAILOUT
In May 2010, the European Union and IMF provided 110bn euros of bailout loans to Greece to help the government pay its creditors. It soon became apparent that this would not be enough, so a second, 130bn-euro bailout was agreed earlier (February) this year.

Crisis

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The measures to further reduce the expenses have been again very drastic. Thus ;
The 13th and 14th annual salary installments will be abolished for civil servants earning a gross salary in excess of 3,000/month; The Public Investment Budget (PIB) for 2010 will be reduced by 0.5bn (or 0.2% of GDP); A 3-year freeze in wages and pensions Further cut backs in central government operational cost

Crisis

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MILESTONES OF THE GREEK CRISIS;

Between the May 2010 and June 2011: The ECB purchased government bonds totaling 78 billion and has also supported private banks in Greece under the more flexible conditions. ( As of May 2011 amount of support was 98 billion) The FED has supported the crisis by extended the swap lines until the August 2012.

Crisis

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MILESTONES OF THE GREEK CRISIS;

July 2010: Parliament agreed on a pension reform: increased the average retirement age and reformed pension benefits. A similar reform was made on hospitals in terms of reduction in total expenditures and consolidation of hospitals.
All these structural reforms were very rigid and caused the social damage in the society.

Crisis

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MILESTONES OF THE GREEK CRISIS;

June and July 2011: EU officials, the ECB, and the IMF debated about a second package for Greece; Greek parliament approved an additional package for the structural reforms

Crisis

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MILESTONES OF THE GREEK CRISIS;

June and July 2011: Main measures of the package; Through 2015, 34,5 billion (about $49 billion, 15 of GDP), of additional spending cuts , To bring the government budget deficit down to 0.9% of GDP by 2015, Aim primarily to reduce over-staffing in the public sector, improve the financial performance of stateowned enterprises, and streamline social transfers, The most important one was privatization and public real estate development program designed to raise 50 billion by 2015, including 15 billion (about $22 billion) by 2013.
Crisis

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 In July 2011, European leaders announced a second financial assistance package for Greece totaling 109 billion ($157 billion) with lower interest rate and longer maturities than the first package. European leaders announced, EFSF, instead of just providing loans, it will be able to provide precautionary lines of credit to countries under market pressures. European leaders and the Institute for International Finance (IIF), announced that holders of Greek bonds would contribute 50 billion through 2014 to the crisis response. Specifically, they would participate, on a voluntary basis, in bond exchanges and bond rollovers (37 billion, about $53 billion) and debt buybacks (12.6 billion, about $18 billion) to lower Greek debt payments over the short-term.
Crisis

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CONSEQUENCES OF THE GREEK CRISIS;

As Euro is the common currency for the entire European Union, Euro zone and all trading partners of Euro Zone, especially US, were affected from currency fluctuations and the dramatic fall in the value of Euro. Since the other member countries agreed to help the Greece, then all taxpayers of these economies were affected from the crisis as a shareholder of the Greece burden.

Crisis

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CONSEQUENCES OF THE GREEK CRISIS;

There occurred a fear of the adverse domino effects on the International Capital Markets which will affect the weak members of the euro zone, so-called PIIGS Portugal, Ireland, Italy and Spain which have already occurred. Global banking system was affected since that many Global banks, including U.S. banks, have invested in the Debt instruments issued by Greece Government. So ultimately this economic crisis will affect many ordinary investors or people who own their shares through pension funds.

Crisis

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TODAY
ELECTIONS
The main two parties were going head to head according to the first poll, which were held on 6th of May. And with the results of the elections on 17th of June the New Democracy party won the elections and the party leader Antonis Samaras becomes the prime minister of Greece. The closest rival was Syriza. The two main political distinctions between two parties were the attitude against the current crises Greece was going through.

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NEW GOVERNMENT
While New Democracy and its leader Antonis Samaras were supporting the bailout plan and austerity measures of the IMF and EU, Syriza and its leader Alexis Tsiparis was against the current IMF austerity plan and he was planning to exit from the Eurozone and take the currency back to drachma.

Today

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AUSTERITY MEASURES
Fiscal Adjustment - The Greek Government are expected to implement reductions in health spending, defense spending, public investment, public sector wage reductions and pensions cut

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AUSTERITY MEASURES
Bank Recapitalizations - All banks will be required to achieve a core tier-1 capital ratio of 9 percent by the third quarter of 2012 and of 10 percent in the second quarter of 2013, by raising capital themselves and/or receiving bailout funds. - Depending on the degree of state help they will need, banks will receive state funds in exchange for common voting shares, shares with restricted voting rights or convertible bonds.

Today

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AUSTERITY MEASURES
Privatizations -Cumulative privatization receipts since June 2011 should be at least 4.5 billion euros by end-2012, 7.5 billion by end-2013, 12.2 billion by end-2014 and 15 billion by end-2015. An initial privatization target of 50 billion euros should be achieved "over the medium term. -The list of companies whose full or partial privatization will be launched in 2012 includes gas company DEPA, gas grid operator DESFA and refiner Hellenic Petroleum.

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AUSTERITY MEASURES
Labor Reform - Greece must pass legislation to reduce the monthly minimum wage, currently at about 750 euros gross, by 22 percent. Below the age of 25, it will be cut by 32 percent. - Social security contributions are to be reduced by 5 percent. - One civil servant will be hired for every five retiring, with the aim of cutting the state sector workforce by about 150,000 people by 2015.

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WHAT SHOULD GREECE DO?

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WHAT SHOULD GREECE DO?

There are three key problems:

1. the government deficit; 2. the countrys balance of payments deficit, and 3. the government debt.

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WHAT SHOULD GREECE DO?

Greece have to leave Euro Greece should declare an emergency, along with a bank holiday, and leave the eurozone and return to the drachma

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WHAT SHOULD GREECE DO?

Almost all domestic wages, prices and contracts will need to be redenominated into the new currency as a matter of law. That new currency will have to have its exchange value with the euro dramatically depreciated. Dont pay on time of debt to anyone for at least a few months, if not years. Default on every penny. Let the market set a value on the future currency, and only then offer to give two drachmas of debt repayment for the value of one drachma in hard euros in new debt. If you get no euros, then give no drachmas. But be very frugal about making that offer. Run up as little debt as possible in the beginning.
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WHAT SHOULD GREECE DO?

Right now tourism is 15% of Greek GDP. Make it 25%. Divert resources to make it happen. Make the best vacation value in Europe Dont let the central bank go crazy printing money. That will just cause inflation and drop the value of the drachma further, postponing a recovery. Encourage all the foreign direct investment Greece Government can. Give them a tax holiday. Drop your tax rates to the lowest in Europe and then enforce them.

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WHAT SHOULD GREECE DO?

Greek has to start produce and export what they can produce as much as possible Greece was central of philosophy, they can do it again, open and make them the most favorite new university and institues to educate people who want do it in the world.
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THANK YOU FOR YOUR ATTENTION

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