THE HELL(ENIC) SAGA

In a externalstrong rebuke to Europe, the Greeks have overwhelmingly voted against the international creditors’ conditions for a further aid. This could “destroy the bridges” between Greece and the rest of Europe. These 61% NO could ultimately push Greece closer to bankruptcy and an exit from the Euro. Greece defaulted on its payment of $1.8 billion to the International Monetary Fund on the night of 30th June. This followed a surprise call for referendum on this issue, by the Greek PM Alexis Tsipras. The country’s banks shut down for the week and restrictions were put in place for withdrawals from ATMs until 6th July. The government hopes that this will help stop the bleeding of banks in the short run. People of Greece started stockpiling food, water and fuel which has led to many markets and petrol stations without any stock.

Is this really the Hellenic Republic (Greece) that we knew?? Greece is home to the first advanced civilizations in Europe and is considered the birthplace of Western civilization at around 3200Trapezus BC. The first Olympics is traditionally dated to 776 BC. One of the oldest items found showing money-changing activity is a silver Greek drachma coin (right) from ancient Hellenic colony from the 4th century BC.

Greece was accepted into the Economic and Monetary Union of the European Union by the European Council on 19 June 2000, based on a number of criteria. This was immediately met with claims that the data was fudged by Greece to meet the criteria. By the end of 2009, as a result of a combination of international and local factors the Greek economy faced its most-severe crisis since the restoration of democracy in 1974 as the Greek government revised its deficit from an estimated 6% to 12.7% of gross domestic product (GDP). As a consequence, there was a crisis in international confidence in Greece’s ability to repay its sovereign debt. To avert such a default, in May 2010 the other Eurozone countries, and the IMF, agreed to a rescue package which involved giving Greece an immediate €45 billion in loans, with more funds to follow,  totaling €110 billion. To secure the funding, Greece was required to adopt harsh austerity measures to bring its deficit under control. In 2011, it became apparent that the bail-out would be insufficient and a second bail-out amounting to €130 billion ($173 billion) was agreed in 2012, subject to strict conditions, including financial reforms and further austerity measures. Even after receiving bailouts, Greece is in a financial mess because the money was supposed to buy Greece time to stabilize its finances. However, the bailout money mainly goes toward paying off Greece’s international loans, rather than making its way into the economy.

Greece is a mere ~$238 bn economy (<0.32% of world GDP -2013), whereas India is a mammoth ~$2000 bn economy. India is the second most populous country in the world, of which more than 65% below the age of 35. India’s exports to Greece form less than 1% of the total exports to the world. Inflation and Interest Rates are lowering in India thus making India a better investment destination. IIP has continued to improve led by Capital goods. India’s current account deficit (CAD) compressed sharply. Indirect tax collections have witnessed a marked improvement. There has been wide consensus that there will be no direct impact of the Greek crisis on India. However there may be an indirect impact in the short run. The equity markets may be spooked due to this uncertainty of Grexit. But the Equity markets look poised to rise in the medium to long term as always after an event.

Changes in SENSEX during and after Major Financial Events

Year

Major Crisis Events SENSEX
High Before Crisis Low During Crisis Absolute Change 4 Years Post Crisis

Absolute Change

Apr-2000 Dot com bubble Burst

5053

3934 -22% 5924

51%

Sep-2001 9 / 11  attacks

3227

2600 -19% 8800

238%

Mar-2003 Iraq Afghan invasion

3121

2924 -6% 13308

355%

Jan-2008 Sub Prime Crisis & Recession

20301

8903 -56% 17234

94%

 

 

 

Disclaimer: This document is meant for private circulation only. Sapient Wealth Advisors & Brokers Pvt. Ltd has taken due care while compiling this report. All information/opinion contained/expressed herein above by SWABPL has been based upon information available to the public and the sources, we believe, to be reliable, but we do not make any representation or warranty as to its accuracy, completeness or correctness. Customers should use this information at their own risk. SWABPL shall not be held responsible for any direct or indirect loss caused by relying on this information.Sapient

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