University Of Petroleum and Energy Studies,

College of Legal Studies,

Dehradun

International Economics Law Project
On the Topic
International Monetary Crisis in Greece


SUBMITTED TO: SUBMITTED BY:
MR. SUJITH P. SURENDRAN KUSH AGRAWAL
ASST. PROFESSOR B.A.LL.B., 9
TH
SEMESTER
COLLEGE OF LEGAL STUDIES SECTION A
DEHRADUN, U.K ROLL NO. - R450210063
SAP ID - 500012361

ACKNOWLEDGEMENT


I would like to thank my esteemed and intellectual professor Mr. Sujith P.
Surendran (Faculty of International Economic Law) without whose support this
research paper would not have been successful. I am most grateful to him for
giving me his valuable time, experience and patience, and for providing me with
major inputs that have given focus to this report and sharpened our knowledge of
the subject.
I also put on record my gratitude towards the library staff, which provided me
access to all the resourceful material for my research.
















































Chapter 1
Introduction

The economy of Greece is the 34th or 42nd largest in the world at $299 or $304 billion by
nominal gross domestic product or purchasing power parity respectively, according to World
Bank statistics for the year 2011. Additionally, Greece is the 15th largest economy in the 27-
member European Union. In terms of per capita income, Greece is ranked 29th or 33rd in the
world at $27,875 and $27,624 for nominal GDP and purchasing power parity respectively.

A developed country, the economy of Greece mainly revolves around the service sector (85.0%)
and industry (12.0%), while agriculture makes up 3.0% of the national economic output.
Important Greek industries include tourism (with 14.9 million international tourists in 2009, it is
ranked as the 7th most visited country in the European Union and 16th in the world by the
United Nations World Tourism Organization) and merchant shipping (at 16.2% of the world's
total capacity, the Greek merchant marine is the largest in the world), while the country is also a
considerable agricultural producer (including fisheries) within the union. As the largest economy
in the Balkans, Greece is also an important regional investor.

The Greek economy is classified as an advanced and high-income one, and Greece was a
founding member of the Organization for Economic Co-operation and Development (OECD)
and the Organization of the Black Sea Economic Cooperation (BSEC). In 1979 the accession of
the country in the European Communities and the single market was signed, and the process was
completed in 1982. In January 2011 Greece adopted the Euro as its currency, replacing the Greek
drachma at an exchange rate of 340.75 drachma to the Euro. Greece is also a member of the
International Monetary Fund and the World Trade Organization, and is ranked 31st on the KOF
Globalization Index for 2010 and 34th on the Ernst & Youngs Globalization Index 2011.






Combined charts of Greece's GDP and Debt since 1970; also of Deficit since 2000. Absolute terms time
series are in current euros.


The country's economy was devastated by the Second World War, and the high levels of economic
growth that followed throughout the 1950s to 1970s are dubbed the Greek economic miracle.
Since the turn of the millennium, Greece saw high levels of GDP growth above the Eurozone
average peaking at 5.9% in 2003 and 5.5% in 2006. Due to the late-2000s financial crisis and the
European sovereign debt crisis, the Greek economy saw growth rates of 7.1% in 2011, 4.9% in
2010, 3.1% in 2009 and 0.2% in 2008. In 2011, the country's public debt stood at 355.658
billion (170.6% of nominal GDP). After negotiating the biggest debt restructuring in history with
the private sector, Greece reduced its sovereign debt burden to 280 billion (136.9% of GDP) in
the first quarter of 2012.






Chapter 2
Financial Crisis of 2007-2008

The financial crisis of 20072008, also known as the global financial crisis and 2008 financial
crisis, is considered by many economists to be the worst financial crisis since the Great Depression
of the 1930s. It resulted in the threat of total collapse of large financial institutions, the bailout of
banks by national governments, and downturns in stock markets around the world. In many areas,
the housing market also suffered, resulting in evictions, foreclosures and prolonged
unemployment. The crisis played a significant role in the failure of key businesses, declines in
consumer wealth estimated in trillions of US dollars, and a downturn in economic activity leading
to the 20082012 global recession and contributing to the European sovereign-debt crisis. The
active phase of the crisis, which manifested as a liquidity crisis, can be dated from August 7, 2007,
when BNP Paribas terminated withdrawals from three hedge funds citing "a complete evaporation
of liquidity

















Chapter 3
Greek Government Debt Crisis

The Greek government-debt crisis is one of a number of current European sovereign-debt crises
and is believed to have been caused by a combination of structural weaknesses of the Greek
economy coupled with the incomplete economic, tax and banking unification of the European
Monetary Union In late 2009, fears of a sovereign debt crisis developed among investors
concerning Greece's ability to meet its debt obligations due to strong increase in government
debt levels This led to a crisis of confidence, indicated by a widening of bond yield spreads and
the cost of risk insurance on credit default swaps compared to the other countries in the
Eurozone, most importantly Germany.




Graph:




Chapter 4
Causes for deteriorated economic


In January 2010 the Greek Ministry of Finance highlighted in their Stability and Growth
Program 2010 these five main causes for the significantly deteriorated economic results recorded
in 2009 (compared to the published budget figures ahead of the year):

Budget compliance: Budget compliance was acknowledged to be in strong need of future
improvement, and for 2009 it was even found to be "A lot worse than normal, due to economic
control being more lax in a year with political elections". In order to improve the level of budget
compliance for upcoming years, the Greek government wanted to implement a new reform to
strengthen the monitoring system in 2010, making it possible to keep better track on the future
developments of revenues and expenses, both at the governmental and local level.

GDP growth rates: After 2008, GDP growth rates were lower than the Greek national statistical
agency had anticipated. In the official report, the Greek ministry of finance reports the need for
implementing economic reforms to improve competitiveness, among others by reducing salaries
and bureaucracy, and the need to redirect much of its current governmental spending from non-
growth sectors (e.g. military) into growth stimulating sectors.

Government deficit: Huge fiscal imbalances developed during the past six years from 2004 to
2009, where "the output increased in nominal terms by 40%, while central government primary
expenditures increased by 87% against an increase of only 31% in tax revenues." In the report the
Greek Ministry of Finance states the aim to restore the fiscal balance of the public budget, by
implementing permanent real expenditure cuts (meaning expenditures are only allowed to grow
3.8% from 2009 to 2013, which is below the expected inflation at 6.9%), and with overall
revenues planned to grow 31.5% from 2009 to 2013, secured not only by new/higher taxes but
also by a major reform of the ineffective Tax Collection System.


Government debt-level: Since it had not been reduced during the good years with strong
economic growth, there was no room for the government to continue running large deficits in
2010, neither for the years ahead. Therefore, it was not enough for the government just to
implement the needed long term economic reforms, as the debt then rapidly would develop into
an unsustainable size, before the results of such reforms were achieved. The report highlights the
urgency to implement both permanent and temporary austerity measures that - in combination
with an expected return of positive GDP growth rates in 2011 - would result in the baseline deficit
decreasing from 30.6 billion in 2009 to only 5.6 billion in 2013, finally making it possible to
stabilize the debt-level relative to GDP at 120% in 2010 and 2011, followed by a downward trend
in 2012 and 2013.

Statistical credibility: Problems with unreliable data had existed ever since Greece applied for
membership of the Euro in 1999. In the five years from 20052009, Eurostat each year noted a
reservation about the fiscal statistical numbers for Greece, and too often previously reported
figures got revised to a somewhat worse figure, after a couple of years. In regards of 2009 the
flawed statistics made it impossible to predict accurate numbers for GDP growth, budget deficit
and the public debt; which by the end of the year all turned out to be far worse than originally
anticipated. In 2010, the Greek ministry of finance reported the need to restore the trust among
financial investors, and to correct previous statistical methodological issues, "by making the
National Statistics Service an independent legal entity and phasing in, during the first quarter of
2010, all the necessary checks and balances that will improve the accuracy and reporting of fiscal
statistics".

The downgrading of Greek government debt to junk bond status in April 2010 created alarm in
financial markets, with bond yields rising so high, that private capital markets practically were no
longer available for Greece as a funding source. On 2 May 2010, the Eurozone countries and the
International Monetary Fund (IMF) agreed on a 110 bailout loan for Greece, conditional on
compliance with the following three key points:
Implementation of austerity measures, to restore the fiscal balance.
Privatisation of government assets worth 50bn by the end of 2015, to keep the debt pile
sustainable.
Implementation of outlined structural reforms, to improve competitiveness and growth
prospect