Effect of defaulting Greece on World and Indian Economy

Effect of defaulting Greece on World and Indian Economy

What is Greece Default?

- The financial markets are in a trouble today as they fear the crash of Greece out of the Euro zone with unexpected consequences. The Greece depression or crisis weakened after the talks with its creditors broke down. This might lead the country to exit from Euro zone.

- In 2001, Greece became the 12th country to join the European single currency. Eurozones are required to have a deficit below 3%. But in 2004, Greece admitted to misreport their financial data which showed its budget deficit to be much lower than it really was.

- In 2009, it was for the first time that the rating of Greece fell below the 'A' status. In the year 2010, Greece gets a financial assistance of $146 from IMF (Indian Monetary Fund) and European member states.

- During the month of June 2015, Greece delayed the debt payment to IMF and it was for the first time in five years that Greece has postponed a repayment of its debt which it borrowed from IMF and other European member states.

- In June, 2015, Greece ordered the closure of banks for about a week and restricted cash from ATM's at 60 € per day. Such a step has been taken to prevent the collapse of the financial system.

Effect on World Economy

- The world economy is considered as an international exchange of goods and services. The Greece depression is one of the biggest external risks to the British economy. The stock exchange of Athens and Greece banks are closed down for a short period of time.

- The stock markets in US and Europe have fallen down terribly after Greece closed its bank and restricted cash withdrawals.

- In London, the FTSE (Financial Times Stock Exchange) 100 index closed down 1.97% and Dow Jones in US closed 1.95% lower. Germany's Dax index fell down more than 3.5%.

- Commerzbank and Deutsche Bank were affected the worst as they lost 4.8% and 5.8% respectively.

- The prices of oil are also affected as Brent crude oil futures fell down to $61.96 a barrel from 1.3%.

- The Euro weakened against the £. Today, one € is worth 0.7090 £ while 1 £ is worth 1.4108 €

- The crisis might lead to revenue and foreign exchange losses for industries like travel companies etc.

Effect on Indian Economy

- India is also worried regarding the Greece crisis, as it might give rise to the capital flows.

- The turmoil in Greece pulled down the BSE index and Sensex by over 500 points. The situation in Greece will not have a direct impact on India but there might be some indirect effect through Europe on capital inflows and outflows in India.

- In case of fixing up a steady interest rate in Europe, there can be a outflow of capital in India.

- India does not have a much exposure to Greece and thus, the crisis will not affect the trade in India. But if European Union is affected due to the Greece crisis, then definitely India would have to suffer a bit.

- If European Union is hit, it could have negative impact on India's trade.

- Rupee may worsen as compared to dollar as investor's will take out money from Greece and invest in dollar. So demand for dollar will increase.

- Gold prices might hike as investor prefer it as safe heaven.

Conclusion

Greece is known for its weak public institutions and extensive corruption in the public sector.

Without the development of the public infrastructure, Greece cannot coexist with the other European member states.

Less strictness, more public sector reforms and handling the debt in a clever way might save the country from the existing crisis.