Monetary Policy of Greece

And Euro Crisis

Presented By:
Rehan Ahmad
Sherjeel Ahmad
Asad Raza
 WHAT IS THE MONETARY POLICY?

 The term monetary policy refers to actions taken by central banks to

affect monetary or other financial conditions.

 Attempts to influence the level of economic activity through changes

to the amount of money in circulation and the price of money – short-
term interest rates.

The money supply can/does influence price levels?

 Inflation occurs if the money supply increases.

 Deflation occurs if the money supply decreases.

Greece Monetary Policy And Euro Zone crisis

Background
 Euro Zone is an economic and monetary union of 17 member states
of European Union (EU) that have adopted the euro (€) as their
common currency.
 The euro was introduced on January 1, 1999.

Greece Monetary Policy:

 Greece, is the 63rd largest economy in the world, Initially, joining the “Eurozone,”
in 2002,
 Greece enjoyed an average growth rate of 4%, until 2007
 Prior to the recession, from the Eurozone In Greece, the government
and corporations were both significant borrowers.
 By the time the “Great Recession,” hit, which stopped the flow of
credit, Greece and the other periphery nations had massive debt,
which rose concerns in the EU. However, throughout 2008 and 2009
the euro area sovereign debt markets remained relatively calm and the
main focus of the ECB was on stability of the area wide banking
system. In late 2009, the economies of Europe would begin to run
into serious trouble.
 The euro’s fiscal rules, set by the ECB and the European
Commission., The massive increases in government spending during
pre-crisis time lead to a crowding out effect in the Greece economy.
 The Crowding out effect in economies is defined as a decline in
private expenditures and a result of increased government
spending.
 In effect, when the crisis hit, and the government could not pay its
amounted debts, the nation could not rely on the private sector to bail
the country out,
.
 Now that the government couldn’t get loans anymore, they
couldn’t pay for all the jobs they created, unemployment rose too
unbelievable levels around 30%.
 By the end of 2009, Greece was faced with a sovereign debt
crisis and became insolvent or unable to payback their loans, in
return risking economic collapse. Without a bailout Greece was
going to default and leave the “Eurozone,” to reestablish its old
devalued currency.
 Then official actions taken by the government, during a period
of adverse economic conditions, to reduce its budget deficit using
a combination of spending cuts or tax rises.
 The austerity measures imposed on Greece were strict, and nearly
impossible for Greece accomplish, because the government would
be forced to cut spending, lowering wages, and collect less in taxes
because people had less income.
 In the Spring of 2010, Greece was the first country to be shut out of
the bond market.
 By May 2010, the Greek finance ministers agreed to accept the
bailout by the (the International Monetary Fund, the European
Central Bank, and the European Commission) which issued the
first international bailouts for Greece, which would eventually total
more than $240 billion euros.
 In response to the Greece bailout, the European commission created
the European Financial Stability Facility (EFSF) which is a special
purpose vehicle (SPV) managed by the European Investment Bank, a
lending institution.

 The fund raises money by issuing debt, and distributes the funds to
Eurozone countries whose lending institutions need to be recapitalized
and need help managing their sovereign debt or just need financial
stabilization

 In the end, Greece would fail, the austerity measures proved too tough
and prolonged the crisis, sending Greece and into another downward
spiral, until once again they would receive another bailout from IMF
By 2011.
 By 2015, Greece and its creditors agreed to a third bailout, imposing
further spending cuts on the country to avoid bankruptcy and exit
from the Eurozone.
 Today, Greece is still struggling to pull out of the recession, but has
remained to stay in the European Union admin all the chaos. The plan
is to help Greece out and stable the economy for long run growth.
Thank You!