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- Created by: Holly
- Created on: 08-01-13 13:47
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- Extract 2
- Just like in most other markets
- All other things remain equal
- Supply of money from money from MS1 to MS2
- Increase in price of money (interest rates) from R1 to R2
- In Argentina and Greece there is long history of government borrowing
- Greece became relatively cheap and easy to borrow
- Financial institutions task into consideration that Greece was part of Euro ('Super Currency') backed by many large powerful countries, notably Germany ( known for record of fiscal and monetary prudence).
- Consequence for Greece as it is a small country with high levels of government debt and low productivity growth but could borrow at same rate as Germany
- Financial institutions task into consideration that Greece was part of Euro ('Super Currency') backed by many large powerful countries, notably Germany ( known for record of fiscal and monetary prudence).
- Too tempting as Greek government increase government borrowing
- To fund Olympics
- Very high state pension (around 92% of fiscal earning)
- Increase in public sector pay (nearly doubled in 10 years)
- Keeping taxes low
- Popular but incomes increase
- Situation made even worse
- Economy starts to decline
- Cost of borrowing increase
- Greece became relatively cheap and easy to borrow
- Situation made even worse
- Cost of borrowing increase
- Greece and Argentine government finances already weak as they had taken advantage of cheap loans
- Private borrowing and spending in Greece encouraged by loose monetary conditions
- Adaption of the Euro
- Cheap money
- Led to property bubble
- Consumer buying lots of luxury goods
- Money flowed in
- Soaked up in property bubble
- Ended up as increasing Greek Current Account deficit
- Money flowed in
- View taken by EU as whole of Greece's fiscal record
- Rules regarding levels of government debt that countries can have to join Euro 'rules'.
- Questionable to whether Greece ever met the initial rules regarding government debt
- Even more damaging is the fact that Greece (as well as PIIGS) had 'difficulties' abiding with Stability and Growth Pact (SGP) rules
- Pressure on their credibilty
- Impact of loss of credibility regarding fiscal prudence is cost of borrowing to countries like Greece increases financial markets see increase in risks.
- Just like in most other markets
- Quantity of anything supplied falls
- Just like in most other markets
- All other things remain equal
- Supply of money from money from MS1 to MS2
- Increase in price of money (interest rates) from R1 to R2
- Just like in most other markets
- Price falls
- Lower retirement age
- Too tempting as Greek government increase government borrowing
- To fund Olympics
- Very high state pension (around 92% of fiscal earning)
- Increase in public sector pay (nearly doubled in 10 years)
- Keeping taxes low
- Popular but incomes increase
- Too tempting as Greek government increase government borrowing
- Increase in wages faster than productivity
- Government debt increases even more (in Fig 2.1 for Greece and Argentina)
- Increase in wages faster than productivity
- Increase in wages faster than productivity
- Lenders become more aware of risks of lending to countries with high debt
- Cost of borrowing increase
- Economy starts to decline
- Situation made even worse
- Cost of borrowing increase
- Situation made even worse
- Lenders become more aware of risks of lending to countries with high debt
- Types of Debt - + Budget Deficit (% of GDP) This is the difference between the amount of money a government receives (mostly from tax receipts) and how much it spends in one years. + National Debt (% of GDP) the total amount of money a government owes. + Current Account Deficit (% of GDP) Net exports minus imports +/- earnings on foreign investments minus payments made to foreign investors) and cash transfers.
- Economic output falls > Unemployment increases > Income and profits fall > Tax receipts fall and benefit payments increase > Government borrows to pay for any shortfall (PSNCR) > Cost of borrowing increases as risk of government debt increases
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