Update on the crisis in Greece

Posted On Monday, Jul 06, 2015


As was probably expected, the Greek populace has given a thumbs down to the referendum of accepting the terms of the creditors, with around 60 % voting a "No" for further austerity measures. This has hugely increased the chance of Greece exiting the Euro zone.

The Prime Minister of Greece, Mr. Alexis Tsipras had called for this referendum after the IMF (International Monetary Fund) and the EU (European Union) refused a moratorium of 2 years requested by the Greece government. Greece was required to pay €1.7 billion to the IMF on the 29th June 2015, for which it required further loans.

The Greece government’s current account deficit was around 14 % of GDP in year 2009 and fiscal deficit of 18 % of GDP. Initially, private creditors where ready to fund Greece’s borrowing but as the Greece did not make any adjustments to reduce fiscal deficit, private creditors pulled the plug. Lenders of last resort like IMF, ECB, and other sovereign countries had to bail out Greece. They agreed to fund Greece provided they implement the structural programme which included cutting wages and pensions to its citizens. Tax increase was not possible as the economy was going through a tough phase.

Due to these measures, unemployment increased from 9 % in 2009 to 25 % from 2013 onwards and continued to remain at these levels creating unrest amongst the Greeks. The bulk of the correction has to be taken by job losses and contraction of GDP. Greece’s GDP has fallen 5 years in a row. After two bailout packages, which led to further cuts in wages and pension, the citizens of Greece made their displeasure heard and elected Tsipras as the Prime Minister who came to power on the mandate of not cutting wages and pensions and a moratorium on payment of debt.

What’s next for Greece and the world?
All eyes are now on European Central Bank to meet on Greece. All European Union leaders are set to meet on Tuesday – 7th July, 2015. One of the key decisions will be made by the ECB whether to continue providing liquidity to Greek banks. It seems highly unlikely that the ECB will render these deliberations pointless by immediately torpedoing the Greek financial system.

What the ECB needs to consider is the ripple effect that will be felt throughout Europe and the world if the talks with Greece fail. If Greece exits the Eurozone – countries like Portugal, Spain and even Italy may follow suit – like a house of cards, collapsing in on itself; leading to an even bigger crisis.

What are its implications for India -
The failure of Greece is not such a big event for the Indian economy, as most of its debt is owned by government of other countries. The European central Bank has ring-fenced other EU countries by stating it would buy the bonds of EU countries. In the Indian context, the effect is not expected to be high as the exposure is very low. The Greece issue would however increase risk aversion towards emerging markets, which would affect capital flows to the Indian markets on a temporary basis.

Source: Data compiled by Quantum AMC.

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments. Please visit – www.quantumamc.com/disclaimer to read scheme specific risk factors.

Above article is authored by Quantum.

View All

  • World Health Day: Build a Healthier Portfolio with Quantum ESG Best-in Class Strategy Fund
    World Health Day: Build a Healthier Portfolio with Quantum ESG Best-in Class Strategy Fund

    Posted On Friday, Apr 05, 2024

    As we celebrate World Health Day on April 7th, it's a timely reminder of the importance of wellness in all spheres of our lives.

    Read More
  • Debt Monthly View for March 2024
    Debt Monthly View for March 2024

    Posted On Friday, Apr 05, 2024

    Indian bond yields were range bound for most of March. 

    Read More
  • Equity Monthly View for March 2024
    Equity Monthly View for March 2024

    Posted On Friday, Apr 05, 2024

    S&P BSE Sensex grew by 1.59% in the month of March 2024. S&P BSE Midcap Index increased by 0.01% & S&P BSE Small cap Index declined by -4.8% respectively.

    Read More

Add To Cart

Add To Cart

Your cart is empty
Total of Lumpsum

Get In Touch

Take small steps in your financial planning to achieve big dreams! Start your investment journey today!

@@tlcomstart@@ @@tlcomend@@