GREECE DEBT CRISIS

Introduction 27th largest economy in the world by nominal GDP and the 33rd by PPP, according to the data given by the IMF for the year 2008 Greece is a member of the OECD, the WTO,, the EU and the Eurozone The Greek economy is a developed economy with the 22nd highest standard of living in the world. The public sector accounting for about 40% of GDP. The Service sector contributes 75.7% of the total GDP, industry 20.6% and agriculture 3.7%.

2010 DEBT CRISES Greece’s debt crisis is reaching a critical period as huge debt repayments are due in the coming weeks. For Greece, this debt crisis is likely to be in a period of prolonged economic stagnation as government spending is cut dramatically

Greek Weakness Greek government had been lying about the size of its budget deficit last year. The scale of the true budget deficit, caught investors off-guard and led to fears that the Greek government would default on its debt. These fears led to a sharp depreciation of the euro and highlighted many of the weaknesses of the European common currency. Moreover, the euro has proven to be a major problem for Greece, as it cannot devalue its currency in order to lessen its debt burden and to boost exports, and as it has exposed the weakness of the Greek economy in relation to other Eurozone members, most notably Germany.

Germany Holds the Key Most EU leaders, as well as the governments of most EU member states, support a bailout package for Greece to help it survive this debt crisis. However, Germany has proven to be highly reluctant to fund such a bailout, as a majority of German voters oppose such a move If Germany blocks an EU bailout for Greece, there will be little choice for the Greek government but to turn to the IMF

The Greek Crises The Greek government has a very large fiscal deficit adding to an already huge level of debt The problem is huge current account deficit Which means the Greek economy needs to attract very large inflows of capital if the economy isn’t going to face a sharp contraction of domestic demand Greek has no independent monetary policy or ability to devalue its exchange rate as having membership of the euro zone

The Greek Crises – implications for the EUR and UK The EUR has underperformed other currencies in recent weeks as the crises has raged This underperformance is greater than would have been suggested by moves in other financial prices And appears to reflect a significant increase in the perceived riskiness of Euro Zone The problems are severe and speak to a wider issue facing the Euro Zone The UK’s fiscal issues now look less serious in relative, but not in absolute, terms

What to Watch For In the past, Germany would have given in to pressure from France and other European Union member states, but a more confident and assertive Germany is beginning to stand up for its own interests within the European Union

REFERENCES Economy of Greece , http://en.wikipedia.org/wiki/Economy_of_Greece ISA Global , 2010, www.isa- world.com/reports_forecasts/global_update economics21, www.economics21.org/.../painful- arithmetic-greek-debt-default ECB, http://www.voxeu.org/index.php?q=node/4384