1st January, 2001 the day when Greece got entry in European monetary union, helped him in containing the effect of financial crisis which was affecting emerging markets around the world. For next 8 year devaluation tool disappeared from Greece economy but in 2008 when global financial crisis struck the world, it created a sizable negative impact on it.. Both of its revenue generating sources, i.e. shipping and tourism were badly affected. In year 2009 its total revenue fell down by 15% leading to the Greek depression.
In late 2009, a fear developed in different lenders’ mind about Greece’s ability to repay his debt. On 30th June, 2015 Greece became the first developed country to make a default in repayment of his loan to IMF and the total amount of his debt is €323 billion. The Greece has the largest sovereign debt default in history.
The major reason of Greek economic crisis is its inefficient pension system. They spent 17.5% of their economic output on pension payments. The other reasons for crisis are the benefits provided to the govt. employees such as unusual bonus and early retirement scheme. A 25.6% of unemployment rate and rampant tax evasion by the citizens of the country are some of the other reasons for this Greek problem.
Greece crisis looked grim. Economists thought that Global Stock market will be rattled and the world economy will conceive Lehman brothers II- a global financial panic. But luckily this did not happen because the Greece economy holds a very small part i.e. 1.8% of total Euro zone consisting of 19 countries. In 2010 most Greek Debt was held by banks and private investor. European central bank (ECB), International Monetary Fund (IMF) and other Euro zone countries bailed out the banks and investors.
The Greece crisis was not a surprise for the world every country including India was aware about it so precautions have been taken. In any case, Greece debt crisis didn’t have a direct impact on Indian economy because India in not directly exposed to Greece in terms of trade ties. India’s GDP growth rate falls by 0.02% as India is not a trade dependent country. Europe is largest trading partner with $129 billion of merchandise commerce out of which $97 billion is with UK, Germany, Italy and France. Indian economy would be able to withstand any impact from Greece’s crisis because India has large no. of foreign exchange reserve.
Indian Govt. took some major steps to nullify the impact of Greek Crisis. They managed their foreign debt into a certain percentage of their GDP. Our country has taken the major steps on stabilising the domestic economy, particularly by steadying the external imbalances and accruing foreign exchange reserves, so the RBI is now in much better position to withstand against volatile and large capital outflows.
Written by Harshit Gupta, MBA-FP 2015-2017