Showing posts with label Global Outlook. Show all posts
Showing posts with label Global Outlook. Show all posts

Greek Crisis And Impact

Posted by Stockplusindia PRIS | 7:53 PM | | 0 comments »


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 'Greece vote a lesson for India too'

 How did Greece get to this point?

 Greece became the epicentre of Europe's debt crisis after Wall Street imploded in 2008. It announced in October 2009 that it had been understating its deficit figures for years, raising alarms about the soundness of Greek finances. Greece was shut out from borrowing in the financial markets. By the spring of 2010, it was veering towards bankruptcy, which threatened to kick off a new financial crisis.
 To avert calamity, the International Monetary Fund, the European Central Bank (ECB) and the European Commission issued the first of two international bailouts for Greece, which would eventually total more than 240 billion euros, or about $264 billion. Lenders imposed harsh austerity terms, requiring deep budget cuts and steep tax increases. They also required Greece to streamline the government, end tax evasion and make the country an easier place to do business.

  What happens next? 

 A group of European finance ministers, with whom Greece broke off debt talks late last month, will meet to discuss an offer by Greece to resume discussions. President Francois Hollande of France and Chancellor Angela Merkel of Germany also plan to meet to discuss how to deal with the country. That meeting could prove crucial because Germany has taken the hardest line against Greece.
 The next major deadline is in late July, when a 3.5-billion-euro payment that Greece owes ECB, comes due. If there is no international bailout programme in place by then, the central bank would probably have to finally take Greek banks off life support.

 How does the crisis affect the global financial system?

 Since Greece's debt crisis began in 2010, most international banks and foreign investors have sold their Greek bonds and other holdings, so they are no longer vulnerable to what happens in Greece. The other crisis countries in the Eurozone, like Portugal, Ireland and Spain, have taken steps to overhaul their economies and are much less vulnerable to market contagion than they were a few years ago.

 How does it impact the Indian economy? 

 The government says it is drawing up plans to meet any adverse impact. Economists say there could be some temporary volatility in the financial market and if a Greece exit from the Eurozone happens, the rupee might depreciate and the stock market might become very volatile, which could lead to capital outflows. Growth in India is largely domestically driven and is expected to pick up. Most multilateral agencies see India growing in the 7-8% range. RBI governor Raghuram Rajan has said the Indian economy will see through any impact of the Greece crisis. Forex reserves of $355 billion will help cushion any possible impact.

 How damaging would a 'Grexit' be?

 Opinions vary on this. At the height of the debt crisis a few years ago, many experts worried that if Greece defaulted on its debt and exited the Eurozone, it might create global financial shocks bigger than the collapse of Lehman Brothers in 2008. However, some people believe that if Greece leaves the currency union, it wouldn't be such a catastrophe. Europe has put up safeguards to limit financial contagion. Greece, just a tiny part of the Eurozone, could regain financial autonomy by leaving and the Eurozone would be better off too. Others say that's too simplistic. Despite endless negotiations, European political leaders see a united Europe as an imperative. Exiting the euro currency union and the European Union would also involve a legal minefield that no country has yet ventured to cross. There are also no provisions for departure, voluntary or forced, from the euro currency union.

 If Greece has received billions in bailouts, why is there still a crisis? 

 The money was supposed to buy Greece time to stabilize its finances. While it has helped, Greece's economic problems haven't gone away. The economy has shrunk by a quarter in five years and unemployment is above 25%. The bailout money mainly goes towards paying off Greece's international loans. And, the government still has a staggering debt load that it cannot begin to pay back unless a recovery takes place. Traders Call (1-5 days) Click on Traders Call for Day Trading recomandations .
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