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Circulation Of Money. Velocity of Money (Circulation) Part 1 Velocity of Money (Circulation) Part 2 Greece ’ s Economic Debt Crisis.

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Circulation Of Money

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Circulation Of Money

Velocity of Money (Circulation) Part 1

Velocity of Money (Circulation) Part 2

Greece’s Economic Debt Crisis

Terminology used in the Presentation:

Capitalism Economy

- an economy that relies chiefly on market forces (corporations) to allocate goods and resources and to determine prices

  • Default Risk

  • chance of a borrower’s not repaying a loan

  • if banker believes that there is a small chance that a borrower will not repay a loan, the banker will charge the true interest plus a premium for the default risk, the premium depending on the degrees of presumed risk.

Hedge Fund

-are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment.


– An acronym referring to the four countries in the Europe Union - Portugal, Ireland, Greece and Spain, where they are in a heavily indebted economic situation.

European Union – Greece

  • European Union

  • Consists of 27 countries, all the countries in this particular partnership uses the single-currency, Euro (EUR- €).

  • Greece

  • Became member of the EU in 1981 (formally European Union 1993)

  • Greece’s economy is 15th largest in the European Union.

  • Greece has a GDP of $308 Billion ranking 41 in the world.

  • Greece has a capitalist economy the public sector accounts for about 40% of GDP.

  • 78% service sector

European Union – Greece

  • Greece

  • Agriculture provides 3.3% of GDP (cotton, pistachios, rice, olives, figs, tobacco, fishing)

  • Agricultural infrastructure upgraded and output increased due to Common Agricultural Policy of EU

  • Tourism provides 15% of GDP

  • Attracts 16 million people per year

  • Avg. tourist expenditure $1,073

  • # jobs directly or indirectly related to tourist sector 840,000

European Union – Greece

  • Greece

  • Shipping key to economy

  • 6% of GDP

  • Employs 160,000 (4% of labour force)

  • Industry 18% of GDP

  • Major industry  cement, pharmaceuticals, ready-mix concrete, beverages (na), rebars, cigarettes, beer, dairy, aluminum, coca-cola

  • most imports from Germany, Italy, Russia, China, France

  • Most exports to Denmark, Italy, France, Netherlands, Russia

European Union – Greece

  • Greece

  • Immigrants make up nearly one-fifth of the work force, mainly in agricultural and unskilled jobs- many temporary jobs

  • Pakistan, Albania, Bulgaria, Romania and Poland

  • Huge problem with illegal immigration – 1/4 of immigrant work force

Europe's Web of Debt



  • Eurozone debt web: Who owes what to whom?

  • Who owes to whom

  • GDP: Total market value of goods and services produced by a nation’s economy during a specific period of time

  • Government Debt: When the government borrows, it gives its creditors government securities stating the terms of the loan

  • principal being borrowed

  • interest rate to be paid on the principal

  • schedule for making the interest payments and principal repayment

  • The amount of outstanding securities equals the amount of debt that has not yet been repaid; that amount is called “the government debt.

  • Foreign Debt: is that part of the total debt in a country that is owed to creditors outside the country.

  • debtors can be the government, corporations or private households

  • debt includes money owed to private commercial banks, other governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank.

Greece’s Debt (external ) from 2003 to 2011

2010: First Bailout for Greece $147 Billion

2012: Second Bailout for Greece $170 Billion

What are the reasons for the extreme increase of debt in 2007 to 2009?

  • Greece benefited from joining the euro in 2001 - strong currency for the economy.

  • The Greek government went on spending spree and public spending soared.

  • decrease in tax revenue in the early 2000s and the increase welfare payment steadily rising.

  • The country’s policies/structure such as one that provides pension towards its citizens is usually generous

  • companies operating in Greece are notorious for tax evasion.

What are the reasons for the extreme increase of debt in 2007 to 2009?

  • Capitalism Economy– Greek government unable to monitor the health of their economy

  • Public sector – An abundance of government jobs (E.g. teachers, civil servants).

  • Government’s solution was to rely on borrowed money to balance “its book”. (A common practice among countries)

What are the reasons for the extreme increase of debt in 2007 to 2009?

  • Large public sector with generous pay compared to private sector – from 2005-2009 12.5% of GDP averaged 12.6% and 1 1/2 times larger than private sector (EU avg. is 10.%)

  • High minimum wage ($583.86 a month) – 50% higher than Portugal, 17% higher than Spain and 5-7 times higher than Romania and Bulgaria

  • High public spending relative to tax revenue – Public spending of GDP – 49-50% tax revenue of GDP is 39%

What are the reasons for the extreme increase of debt in 2007 to 2009?

  • Investors observed the steady increase of debt in the country - imposed a higher rate of interest in fear of not receiving their investment back.

  • resulted in higher borrowing cost - not allowing the Greek economy to decrease the debt

  • Eventually the credit agencies decreased the country to a “debt risk” - adding to the borrowing cost

What was the government’s solution to the amounting debt?

  • 2010 government quickly asked for assistance from the EU and the IMF fearing the possibility of bankruptcy

  • May, IMF and the EU provided Greece with $147 billion loan (paid through installments) to repay creditors.

  • Is the $147 billion loan is the solution for Greece?

“The IMF's primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with one other.”

What was the government’s solution to the amounting debt?

  • To ensure that Greece repays the money, both lenders demanded a tough series of public sector cuts, designed to raise the credit rating (obtain a reasonable credit worthy).

  • Cut budget deficit from 13.6% to 8.1% by 2014 to be below 3%

  • Lower wage competitor – slash gov’t wages and pensions, create a 2 tiered private wage system – to higher young (40% umemployment)

What was the government’s solution to the amounting debt?

  • 3. Privatize public enterprises (airport, hospital)\

  • Lower wage competitor – slash gov’t wages and pensions, create a 2 tiered private wage system – to higher young (currently 40% unemployment)

  • Open up businesses protected by tariffs

  • Increase in retirement age from 61 to 63

  • The single currency – Euro

The problem of a single currency and its effect on members of the EU.

  • Using a single currency with 23 countries (most notably: Germany & France) does not allow, Greece the possibility of devaluing its currency, and nor can it cut interest. Both the methods above can stimulate economic growth.

  • Important information to note:

  • Video was posted June 6, 2011.

  • Same date the EU and IMF approved the 2nd bailout installment of the $147 billion.


European Union & Eurozone

The effect on the Euro

  • The news exposure of the debt crisis, have decreased the value of the euro globally. Losing over a tenth of its value in 2010.


  • Trade relations

  • Free movement of goods, services and people

  • Euro can promote tourism, as the low exchange rate makes it cheaper to visit.


  • A decreasing euro, increases the strength of other currencies. Exports from other countries will become expensive. Therefore increasing the consumer price of goods, decreasing the standard of living.

  • People would extract their money out of Greece to avoid having their holdings switched into a new, less valuable currency. This can cause banks to collapse, destabilizing the financial system across Europe, and inflation would soar

  • It would be extremely difficult to pay debts in euros with a weaker national currency.

With some European countries seemingly unable to control their spiraling debt, and with uncertainty over the type of financial relief the European Central Bank may contribute, there are fears the end of the euro is near.

Why Canadians should be concerned about a Euro collapse (source: CBC Dec 1, 2011):

How the debt crisis effects Canada

  • Why Canadians should be concerned about a Euro collapse (source: CBC Dec 1, 2011)

  • deliver a significant blow to the Canadian economy, leading to less trade, higher unemployment and a possible recession

  • If the euro dissolved - a number of countries with their debt denominated in euros would immediately have to default since they would adapt their own domestic currencies and those would be devalued from anywhere between 50 to 70 per cent.

  • As some European governments would default, banks holding those bonds would not have money to lend, drying up liquidity. In Canada this would stop spending, which could lead to a possible recession in Canada.

How the debt crisis effects Canada

  • Why Canadians should be concerned about a Euro collapse (source: CBC Dec 1, 2011)

  • Matthias Kipping, professor of policy and chair in business history at Schulich School of Business, said the euro collapse would mean countries would become more protectionist, which would have a major effect on a country like Canada that relies on exports. This could lead to a rise in unemployment but it will not happen over night.

  • While Canada’s direct share of global trade with Europe is relatively small, it would be indirectly affected by those countries, in particular the United States, which are heavily exposed to the European market and which Canada trades with.

Greece Debt Review

Greece Owes the Following:

Britian $15 Billion

France $75 Billion

Germany $45 Billion

Ireland $8.5 Billion

Italy $6.9 Billion

Spain $1.3 Billion

Portugal $9.7 Billion

Euro Zone Debt Total $161.4 Billion

Debt to other countries: $74.6 Billion

Grand Total: $236 Billion

Interest Rates charged by investors for 10 year bonds 7.6%

In comparison Germany was only 3%

Interest per year for 10 years at 7.6%:17,936,000,000

Interest per year for 10 years at 3.0%:7,080,000,000

E.g. A country wants to borrow $100. It issues a bond that it sells for $100. To attract investors, the issuer of the bond offers to pay $4 a year to holders of the bond, and will do so for 10 years. At that time, the bond matures, and the bold holder gets $100 back.

GDP: $318.1 Billion

Public 60%Private 40%

Greece's economic crisis has forced the government to cut public spending by tens of billions, slash salaries and raise taxes. Greeks have raided their savings. According to small Greek lender Attica Bank, around 50 billion euros ($68 billion) have been taken out of Greek banks over the past two years, much of that by middle class people. This has effected the liquidity of the banks (ability to hand out cash).

  • Greece debt crisis: Referendum promised on EU deal

  • Greece's George Papandreou to stand down as PM

  • Greek debt crisis: Lucas Papademos on 'Herculean' task

  • China the Savior: BRICS cementing Euro-deals

  • As Greece Erupts, BBC's Paul Mason on the New Global Revolutions Over Austerity, Inequality

  • Greece BURNS After Pensioners Shoots

  • Pro-bailout parties weakened in Greece vote

  • Greeks Must Get Poorer - Papademos Reveals His True Mission

  • Greek bailout: Eurozone holds back 1bn-euro payment

    Greek political earthquake shakes EU. 8 May 2012. CSF Rieti

BBC This World

BBC This World - Michael Portillo's Great Euro Crisis (2012)


Debt Clock For Canada

WTF: The federal budget and 50 years of Canadian debt

Canada Budget Cutbacks What's in Store (The National)

Consumer Debt in Canada

Debt and Mortgages

Greece seeing deposits drain, report says

Greek elections set for June 17 after talks collapse



Go to CIA Factbook and Assess Canada’s Economic Situation. Create an outline using indicators and your understanding to write about the state of our economy.

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