Grece Slowdown

8/9/2019 Grece Slowdown

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Source : The Economic TimesDate :21st April 2010

Presented by

Rohit RawatMba 2nd sem


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In early 2010, fears of a sovereign debt crisisdeveloped concerning some countries in theEuro Area, specifically: Greece

, Spain

, Italy

,

Ireland, and Portugal. This led to a crisis ofconfidence as well as the widening of bondyield spreads and risk insurance on creditdefault swaps between these countries and

other Eurozone members, specifically Germanyand Franc


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The focus on rising yields on Greek Governmentdebt has led to a weakening of the euro and awidespread global stock and commodity selloff inFebruary 2010.

It must be noted that the weakening in the valueof the Euro on foreign exchange markets waswelcomed in Germany, which is one of the world'sleading exporters. Given that the Euro Area does

not rely on foreign capital, that is it has a balancedcurrent account, the lower Euro is seen as apotential boost to growth in the Euro Area as netexports are likely to rise.


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On the 23 April 2010, the Greek governmentrequested that the EU/IMF bailout package beactivated. The IMF has said it was "prepared to

move expeditiously on this request." The sizeof the bail out is expected to be 45 billion ($61billion) and is expected to take three weeks tonegotiate, with a pay out within weeks of 8.5

billion of Greek bonds becoming due forrollover


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"The mission is within the context of the regularsurveillance that the IMF provides to itsmembership," the brief statement said.

A Greek finance ministry official said there wouldbe no talk of a loan.

They have invited them to help with theirtechnical know-how, notably for the reform that

we have launched to draft the budget," the officialtold AFP on condition of anonymity.


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Greece, whose public spending deficit rose to12.7 percent of output last year and debtclimbed to 113 percent of gross domestic

product (GDP), must present its crisis programto the EU by the end of the month.

The Socialist government has said it will getthe deficit down to 8.7 percent in 2010 by

cutting government spending and fighting taxfraud. It aims to bring it to below 3.0 percent ofGDP, the limit imposed by the eurozone, in2012.


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The government on Friday announced a 20percent increase in tobacco and alcohol taxesand a higher inheritance tax as it fended off EU

pressure for drastic action to tackle its debtmountain.


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The International Monetary Fund said Monday itis sending a mission to Athens this week fortalks on helping debt-stricken Greece overcome

its financial crisis.The Mission is "to explore possibilities for

technical assistance from the IMF in the comingmonths on pension reform, tax policy, taxadministration, and budget management," thefund said in a statement.


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Finance Minister Georges Papaconstantinouannounced the tax hikes as he reaffirmed theneed for the country to establish financial

credibility in Europe where Greece's troubleshave raised concerns about the eurozone'sstability.

Papaconstantinou told the Italian newspaper IlSole 24 recently that "we will solve our fiscalproblems alone."


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Grece Slowdown