Transcript Greece debt - WESTDALE WORLD ISSUES

Circulation Of Money
Velocity of Money (Circulation) Part 1
http://www.youtube.com/watch?v=lXoAjTVyMxQ&feature=related
Velocity of Money (Circulation) Part 2
http://www.youtube.com/watch?v=50WIo0CfwBI&feature=related
LOGO
LOGO
Greece’s
Economic Debt
Crisis
www.themegallery.com
Terminology used in the
Presentation:
Default Risk
-chance of a borrower’s not repaying
a loan
- if banker believes that there is a small
chance that a borrower will not repay
a loan, the banker will charge the true
interest plus a premium for the default
risk, the premium depending on the
degrees of presumed risk.
“PIGS”
– An acronym referring to the four
countries in the Europe Union - Portugal,
Ireland, Greece and Spain, where they
are in a heavily indebted economic
situation.
Capitalism Economy
- an economy that relies chiefly on
market forces (corporations) to allocate
goods and resources and to determine
prices
Hedge Fund
-are most often set up as private
investment partnerships that are open to
a limited number of investors and
require a very large initial minimum
investment.
European Union – Greece
European Union
•Consists of 27 countries, all the countries in
this particular partnership uses the singlecurrency, Euro (EUR- €).
Greece
•Became member of the EU in 1981
(formally European Union 1993)
•Greece’s economy is 15th largest in the
European Union.
•Greece has a GDP of $308 Billion
ranking 41 in the world.
•Greece has a capitalist economy the
public sector accounts for about 40% of
GDP.
•78% service sector
European Union – Greece
Greece
•Agriculture provides 3.3% of GDP
(cotton, pistachios, rice, olives, figs,
tobacco, fishing)
•Agricultural infrastructure upgraded
and output increased due to Common
Agricultural Policy of EU
•Tourism provides 15% of GDP
•Attracts 16 million people per year
•Avg. tourist expenditure $1,073
•# jobs directly or indirectly related to
tourist sector 840,000
European Union – Greece
Greece
•Shipping key to economy
•6% of GDP
•Employs 160,000 (4% of labour force)
•Industry 18% of GDP
•Major industry  cement,
pharmaceuticals, ready-mix concrete,
beverages (na), rebars, cigarettes, beer,
dairy, aluminum, coca-cola
• most imports from Germany, Italy,
Russia, China, France
•Most exports to Denmark, Italy, France,
Netherlands, Russia
European Union – Greece
Greece
•Immigrants make up nearly one-fifth of the
work force, mainly in agricultural and unskilled
jobs- many temporary jobs
•Pakistan, Albania, Bulgaria, Romania and
Poland
•Huge problem with illegal immigration – 1/4
of immigrant work force
Europe's Web of Debt
30
200
Eurozone debt web: Who owes what to whom?
Who owes to whom
GDP: Total market value of goods and services produced by a
nation’s economy during a specific period of time
Government Debt: When the government borrows, it gives its
creditors government securities stating the terms of the loan
1.principal being borrowed
2.interest rate to be paid on the principal
3.schedule for making the interest payments and principal
repayment
The amount of outstanding securities equals the amount of debt
that has not yet been repaid; that amount is called “the
government debt.
Foreign Debt: is that part of the total debt in a country that
is owed to creditors outside the country.
• debtors can be the government, corporations or private
households
• debt includes money owed to private commercial banks,
other governments, or international financial institutions
such as the International Monetary Fund (IMF) and World
Bank.
Greece’s Debt (external ) from 2003
to 2011
Year
Debt - external
Percent Change
Date of Information
2003
$63,400,000,000
2004
$65,510,000,000
3.33 %
2003 est.
2005
$67,230,000,000
2.63 %
2004 est.
2006
$75,180,000,000
11.83 %
2005 est.
2007
$301,900,000,000
301.57 %
30 June 2006 est.
2008
$86,720,000,000
-71.28 %
31 December 2007
2009
$504,600,000,000
481.87 %
31 December 2008
2010
$552,800,000,000
9.55 %
30 June 2009
2011
$532,900,000,000
-3.60 %
30 June 2010
2002 est.
2010: First Bailout for Greece $147 Billion
2012: Second Bailout for Greece $170 Billion
What are the reasons for the extreme
increase of debt in 2007 to 2009?
•Greece benefited from joining the euro in 2001 - strong currency for
the economy.
•The Greek government went on spending spree and public spending
soared.
•decrease in tax revenue in the early 2000s and the increase welfare
payment steadily rising.
•The country’s policies/structure such as one that provides pension
towards its citizens is usually generous
•companies operating in Greece are notorious for tax evasion.
What are the reasons for the extreme
increase of debt in 2007 to 2009?
•Capitalism Economy – Greek government unable to
monitor the health of their economy
•Public sector – An abundance of government jobs (E.g.
teachers, civil servants).
•Government’s solution was to rely on borrowed money to
balance “its book”. (A common practice among countries)
What are the reasons for the extreme
increase of debt in 2007 to 2009?
•Large public sector with generous pay compared to private
sector – from 2005-2009 12.5% of GDP averaged 12.6% and
1 1/2 times larger than private sector (EU avg. is 10.%)
•High minimum wage ($583.86 a month) – 50% higher than
Portugal, 17% higher than Spain and 5-7 times higher than
Romania and Bulgaria
•High public spending relative to tax revenue – Public
spending of GDP – 49-50% tax revenue of GDP is 39%
What are the reasons for the extreme
increase of debt in 2007 to 2009?
•Investors observed the steady increase of debt in the
country - imposed a higher rate of interest in fear of not
receiving their investment back.
•resulted in higher borrowing cost - not allowing the
Greek economy to decrease the debt
•Eventually the credit agencies decreased the country to
a “debt risk” - adding to the borrowing cost
What was the government’s solution
to the amounting debt?
• 2010 government quickly
asked for assistance from the
EU and the IMF fearing the
possibility of bankruptcy
• May, IMF and the EU
provided Greece with $147
billion loan (paid through
installments) to repay
creditors.
Is the $147 billion loan is the
solution for Greece?
“The IMF's primary purpose is to ensure the stability
of the international monetary system—the system of
exchange rates and international payments that
enables countries (and their citizens) to transact with
one other.”
What was the government’s solution
to the amounting debt?
•To ensure that Greece repays the money, both
lenders demanded a tough series of public sector cuts,
designed to raise the credit rating (obtain a reasonable
credit worthy).
1. Cut budget deficit from 13.6% to 8.1% by 2014
to be below 3%
2. Lower wage competitor – slash gov’t wages and
pensions, create a 2 tiered private wage system –
to higher young (40% umemployment)
What was the government’s solution
to the amounting debt?
3. Privatize public enterprises (airport, hospital)\
4. Lower wage competitor – slash gov’t wages and
pensions, create a 2 tiered private wage system –
to higher young (currently 40% unemployment)
5. Open up businesses protected by tariffs
6. Increase in retirement age from 61 to 63
•The single currency – Euro
The problem of a single currency
and its effect on members of the EU.
•Using a single currency with 23 countries (most notably: Germany & France)
does not allow, Greece the possibility of devaluing its currency, and nor can it
cut interest. Both the methods above can stimulate economic growth.
Important information to note:
•Video was posted June 6, 2011.
•Same date the EU and IMF approved the 2nd bailout installment of the $147
billion.
•http://www.youtube.com/watch?v=uuTAthEfjdo
European Union & Eurozone
The effect on the Euro
• The news exposure of the debt crisis, have decreased the value of the euro
globally. Losing over a tenth of its value in 2010.
Benefit
• Trade relations
• Free movement of goods, services and people
• Euro can promote tourism, as the low exchange rate makes it cheaper to
visit.
Disadvantage
• A decreasing euro, increases the strength of other currencies. Exports from
other countries will become expensive. Therefore increasing the consumer
price of goods, decreasing the standard of living.
• People would extract their money out of Greece to avoid having their
holdings switched into a new, less valuable currency. This can cause banks
to collapse, destabilizing the financial system across Europe, and inflation
would soar
• It would be extremely difficult to pay debts in euros with a weaker national
currency.
With some European countries seemingly unable to
control their spiraling debt, and with uncertainty over the
type of financial relief the European Central Bank may
contribute, there are fears the end of the euro is near.
Why Canadians should be concerned about a Euro collapse
(source: CBC Dec 1, 2011):
How the debt crisis effects Canada
Why Canadians should be concerned about a Euro collapse
(source: CBC Dec 1, 2011)
•deliver a significant blow to the Canadian economy,
leading to less trade, higher unemployment and a possible
recession
•If the euro dissolved - a number of countries with their
debt denominated in euros would immediately have to
default since they would adapt their own domestic
currencies and those would be devalued from anywhere
between 50 to 70 per cent.
•As some European governments would default, banks
holding those bonds would not have money to lend, drying
up liquidity. In Canada this would stop spending, which
could lead to a possible recession in Canada.
How the debt crisis effects Canada
Why Canadians should be concerned about a Euro collapse
(source: CBC Dec 1, 2011)
•Matthias Kipping, professor of policy and chair in
business history at Schulich School of Business, said the
euro collapse would mean countries would become more
protectionist, which would have a major effect on a
country like Canada that relies on exports. This could lead
to a rise in unemployment but it will not happen over night.
•While Canada’s direct share of global trade with Europe
is relatively small, it would be indirectly affected by those
countries, in particular the United States, which are heavily
exposed to the European market and which Canada trades
with.
Greece Debt Review
Greece Owes the Following:
Britian $15 Billion
France $75 Billion
Germany $45 Billion
Ireland $8.5 Billion
Italy $6.9 Billion
Spain $1.3 Billion
Portugal $9.7 Billion
Euro Zone Debt Total $161.4 Billion
Debt to other countries: $74.6 Billion
Grand Total: $236 Billion
Interest Rates charged by investors for 10 year bonds 7.6%
In comparison Germany was only 3%
Interest per year for 10 years at 7.6%:17,936,000,000
Interest per year for 10 years at 3.0%:7,080,000,000
E.g. A country wants to borrow $100. It issues a bond that it sells for $100. To attract investors, the issuer of the
bond offers to pay $4 a year to holders of the bond, and will do so for 10 years. At that time, the bond matures, and
the bold holder gets $100 back.
GDP: $318.1 Billion
Public 60% Private 40%
Greece's economic crisis has forced the government to cut public spending by tens
of billions, slash salaries and raise taxes. Greeks have raided their savings.
According to small Greek lender Attica Bank, around 50 billion euros ($68 billion)
have been taken out of Greek banks over the past two years, much of that by middle
class people. This has effected the liquidity of the banks (ability to hand out cash).
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Greece debt crisis: Referendum promised on EU deal
http://www.bbc.co.uk/news/world-europe-15532614
Greece's George Papandreou to stand down as PM
http://www.bbc.co.uk/news/world-europe-15615275
Greek debt crisis: Lucas Papademos on 'Herculean' task
http://www.bbc.co.uk/news/world-europe-15823832
China the Savior: BRICS cementing Euro-deals
http://www.youtube.com/watch?v=6qwHN29-yBg
As Greece Erupts, BBC's Paul Mason on the New Global Revolutions Over Austerity, Inequality
http://www.youtube.com/watch?v=7WsmWEt0RK0
http://www.youtube.com/watch?v=3XrpepTFLI0
Greece BURNS After Pensioners Shoots
http://www.youtube.com/watch?v=mTvxpX3U8rw
Pro-bailout parties weakened in Greece vote
http://www.youtube.com/watch?v=nM2Ch1LJq6c
Greeks Must Get Poorer - Papademos Reveals His True Mission
http://www.youtube.com/watch?v=M4mB95mh6T8
Greek bailout: Eurozone holds back 1bn-euro payment
http://www.bbc.co.uk/news/business-18014075
Greek political earthquake shakes EU. 8 May 2012. CSF Rieti
http://www.youtube.com/watch?v=B6L6v1MS8v8
BBC This World
BBC This World - Michael Portillo's Great
Euro Crisis (2012)
http://www.youtube.com/watch?v=XMXSjWy999k
Canada
Debt Clock For Canada
http://www.debtclock.ca/index.php?option=com_wrapper&view=wrapper&Itemid=1
WTF: The federal budget and 50 years of Canadian debt
http://news.nationalpost.com/2011/03/21/graphic-50-years-of-canadian-debt/
Canada Budget Cutbacks What's in Store (The National)
http://www.youtube.com/watch?v=E8WObaFv3yo
Consumer Debt in Canada
http://www.youtube.com/watch?v=Gqua50Q1NHQ
Debt and Mortgages
http://www.youtube.com/watch?v=3uZWDcnN_Fo&feature=related
Greece seeing deposits drain, report says
http://www.cbc.ca/news/business/story/2012/05/15/greece-europe-debt-crisis.html
Greek elections set for June 17 after talks collapse
http://www.cbc.ca/news/canada/story/2012/05/16/greece-euro-crisis.html
Articles
http://www.huffingtonpost.ca/2012/03/15/canada-budget-2012-canadian-centre-for-policyalternatives_n_1346500.html
Canada
Go to CIA Factbook and Assess Canada’s
Economic Situation. Create an outline using
indicators and your understanding to write
about the state of our economy.