Global Economy in Doldrums | Arvind Sukumar at SIMClairvoyance 2011

In the EU, especially in countries like Greece ,Ireland and Portugal where sovereign debts have increased sharply a crisis of confidence has emerged with the widening of bond yield spreads(difference between the quoted rates of return on two different investments, usually of different credit quality.) and risk insurance on credit default swaps(is a form of insurance that protects the buyer of the CDS in the case of a loan default) between these countries and other EU members, most importantly Germany.

The Root Causes

To keep within the monetary union guidelines, the government of Greece (like many other governments in the Euro zone) had misreported the country's official economic statistics. In the beginning of 2010, it was discovered that Greece had paid Goldman Sachs ( American  investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients.) and other banks hundreds of millions of dollars in fees since 2001 for arranging transactions that hid the actual level of borrowing.

How Greece crises can effect or are crucial from Indian prospective?

One of the prime industries of Greece is tourism. So it’s primarily based on the tourists visiting Greece and hence adding on to their revenues. But due to ever rising inflation, cost of every service and product has gone up, therefore lowering the savings of the people worldwide. Fewer savings means less disposable income available with the people, therefore less spending on travelling which will eventually affect tourism. That means Greece will have less revenue to spent on its huge imports (huge importer of oil and rice).and to pull down its expenses it will certainly opt for cheaper sources which are surrounding countries like Russia and in this case India’s exports will be affected resulting in currency rate fluctuation (as flow of capital from one country to another effects currency).



(Inputs from Barkha Kaul, MBA Batch 2013)