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Greece Debt Crisis
Jul 02, 2015

Greece is squeezed between a crushing debt burden—177% of GDP, about twice the level in the United State —and a deep depression that makes it difficult to raise the money it needs to make its debt payments. Now after defaulting on payment of installment to IMF Greek Prime Minister Alexis Tsipras's government has created political and financial uncertainty by announcing July 5 as referendum for voters to decide whether to accept a bailout deal offered by international creditors.

  • If voters favour ‘no’, default and leave, it will put the Euro 7.5 billion bailout disbursement at stake. If Greece defaults on the Euro 6.7 billion owed to the ECB in July and August, the quality of Greek collateral will drop owing to insolvency.

  • If there is 'yes' vote, the austerity measures in the deal will be accepted by Greece and the bailout package will be released as a result. 

  • When Greece joined the Eurozone in 2001, confidence in the Greek economy grew and a big economic boom followed. 

  • After the 2008 financial crisis, everything changed. Every country in Europe entered a recession, but because Greece was one of the poorest and most indebted countries, it suffered the most. 

  • The unemployment rate in Greece reached 28% in, worse than the United States suffered during the Great Depression.

  • For the last five years, Greece has been negotiating with European Commission, the European Central Bank, and the International Monetary Fund for financial assistance with its debt burden.

  • Since 2010, these institutions has been providing Greece with loans in exchange for tax hikes and spending cuts.

  • Greek debt is mostly held by Euro zone, IMF and ECB. Out of total trade of 100 billion Euro, Greece's major trading partners are the Euro area, Central and Eastern Europe and Middle East. 

  • Most of Greece's imports of 64 billion Euro are from Eurozone (38%), Middle East (14%), Russia and Emerging Europe (10% each). 

  • The Greece default is likely to be a risk-off sentiment, which would adversely impact Equity Multiplier (EM) assets and India will also be vulnerable even though it has negligible direct exposure to Greece. 

  • Indian markets may see short-term volatility due to Greece crisis. 

The Greece debt crisis is much more than that the small country defaulted on its debt. Like the 2008 collapse of Lehman Brothers, some think the Greek default would plunge the world into a financial crisis. The Greek debt crisis warns of the danger facing other heavily indebted countries.


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