2. C A U S E S International factors: -Increased Access to Capital at Low Interest Rates -Heavily borrow -Access to artificially cheap credit -Global finance crisis in 2008 -Issues with EU Rules Enforcement -Lack of enforcement of the Stability and Growth Pact -Budget deficit fall between 12-16% of GDP (09/10) -Debt more than 130% of GDP(2009)

3. Causes of The Crisis cont. Domestic factors: -High Government Spending and Weak Government Revenues -Mismanagement by politicians, public sectors, employees … -Declining International Competitiveness

4. Type of Crisis DEBT CRISIS: Years of unrestrained spending, cheap lending and failure to implement financial reforms left Greece badly exposed when the global economic downturn struck. The country faced a huge sovereign debt problem and their government cannot pay back without help.

5. Impact on The Aggregate Economy => C  I  NX  G  => AD   AFFECTED AGGREGATE ECONOMY Budget Debt Affected the € value Affected International Stocks and other investments Contagion effect

6. Impact on The Aggregate Economy cont. High Unemployment Decrease in Y Low Level of Growth High Inflation

7. The Impacts of the Crisis on the Greek Economy The Decline of the Real GDP Growth Rate and Increase in Sovereign Debt

8. Large increase in Unemployment Rate

9. Inflation

10. Volatility in Currency and Stock Markets

11. With: Real GDP Growth Rate UnemploymentInflation Currency and Financial Volatility Debt What policies should be implemented?

12. Austerity Measures Because Greece is part of the EU, Monetary Intervention was unviable. On March 5 th, 2010 the Greek Parliament passed the Economy Protection Bill in an effort to reduce Public Sector Spending; especially through wage cuts. Public-owned companies to be reduced from 6,000 to 2,000 (Large Privatization) The Government has also hiked taxes on fuel, tobacco and alcohol, and raised the retirement age by two years A financial stability fund has been created. Changes were planned to the laws governing lay-offs and overtime pay.

13. EU/IMF Intervention On April 23 rd 2010, the Greek government requested a bailout package from the EU and IMF. The deal consisted of an immediate €45 billion in loans to be provided in 2010, with more funds available later. A total of € 110 billion has been agreed (where € 80 billion will be funded by the EU, and €30 billion by the IMF). The interest for the Euro-zone loans is 5% (which is considered high for a bailout loan. The government of Greece has agreed to impose even more austerity measures in exchange for the help being provided by its EU partners and the IMF.

14. After May 2010 The General Government deficit was reduced by 5 percentage points of GDP The cyclically primary adjusted deficit was reduced by 7.2 percentage points of GDP Primary expenditures were reduced as a share of GDP from 47.6% to 44.0% Revenues as a share of GDP increased from 37.3% to 39.1%

15. Signs of recovery Increase in real GDP of 0.8% in the first quarter of 2011

16. Recovery cont. Exports have grown at an average rate of 35% The current account deficit was reduced from 14% to 11.8%

17. “BUT...“ Reduced deficit, BUT continues to be large Contained the rate of growth of public debt, BUT as long as there are deficits, the level of debt and interest expenditures will increase The recession is shrinking, BUT haven’t returned to sustainable levels of growth and reduction in unemployment The banking system remains stable, BUT there continues to be a shortage of liquidity

18. Challenges and Targets Immediate Priorities Regaining the trust Continuation of disbursement of the loan Ensuring the financing Tools to credibility Ensuring to meet the fiscal target of 2011 Additional measures Privatization policy for investments

19. QUESTIONS? THANK YOU!