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Debt sustainability criteria

Debt sustainability criteria. Investment Sustainability. It stipulates that optimal Debt/GDP ratio should be attained, optimality is relative given anyone country’s fiscal conditions. Optimal Debt/GDP ratio. EU and IMF set debt/GDP ratio It was simply the median debt/GDP ratio.

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Debt sustainability criteria

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  1. Debt sustainability criteria Investment Sustainability It stipulates that optimal Debt/GDP ratio should be attained, optimality is relative given anyone country’s fiscal conditions
  2. Optimal Debt/GDP ratio EU and IMF set debt/GDP ratio It was simply the median debt/GDP ratio. It was proposed to be the optimal ratio. It is not binding. It could be included in EU accession criteria 40% Developing countries Developed countries 60% Gross Domestic Product
  3. Maastricht Treaty - 1992 EU signed Maastricht Treaty, under which EDP was defined in article 104. According to the treaty, fiscal surveillance concerning public debt is based on the EDP method. The Treaty obliges Member States to comply with budgetary discipline by respecting two criteria: a deficit to GDP ratio not exceeding 3% a debt to GDP ratio not exceeding 60%.
  4. Public debt/GDP figures - EU Many EU countries have crossed 60%. Public debt in Italy and Greece exceeds the GDP
  5. Public debt/GDP figures - EU Public debt/GDP 2010 Source: EUROSTAT
  6. Economic Indicator Listing in Year 2010 Crossing Debt/GDP Public debt/GDP 2010 <60% 60-80% Spain Cyprus 81-100% Netherlands Malta Austria 101-120% UK 121%+ Hungary France Greece Germany Ireland Iceland Italy Port. Belgium Source: EUROSTAT
  7. Public debt crisis in Greece Overview: Public debt/GDP reached 142% in 2010. Increasing tax rates Rising unemployment rates Greek government now has to pay rates of up to 30% to borrow. The government is facing auction sale of the country’s assets so that foreign governments and banks can get their money back
  8. Public debt crisis in Greece What triggered the crisis? Greece joined EU in 1981. Since then, Greece enjoyed high economic growth rate brought about by Trade boom Tourism boom No real growth has been achieved since public expenditures were largely used to plug gaps in the Greek budget that was struggling to meet the costs of pensions and other current expenditures
  9. Public debt crisis in Greece Since EURO ZONE accession in 2001, the local currency had been replaced by a big global currency, the euro. This allowed Greece’s borrowing costs to fall sharply, cutting the cost of public sector borrowing and the interest rates paid on business and personal loans Impact of interest rate decrease 2001-2008 الرواج التجارى Private sector الرواج التجارى Public sector Household sector Borrowing increased rapidly due to weak bank prudential regulations Borrowing increased rapidly due to weak bank prudential regulations Greece’s household savings rate fell from 3.2% in 2000, pre-EMU, to minus 3.2% in 2006, by 2007 the debt-to-income ratio of Greek households had quadrupled to 65%. The increase in consumer spending caused the country’s current account deficit to rise by 14-15% of GDP, with inflation each year being 1-2% above the euro country average
  10. Public debt crisis in Greece Is it the government responsibility? Total debt to foreign banks at the end of 2010 amounted to $174bn. Yet the breakdown of this huge debt is as follows: Nevertheless, the government is responsible for: Reducing tax rates and in turn public revenues. Increasing current public expenditures. They took advantage of derivative financial products to make a portion of the government deficit ‘disappear’ from the view of Europe’s accountants.
  11. اليونان – أزمة الدين العام Solutions adopted: Since 2009, the government was in a big trouble with foreign banks demanding back their money. Increasing tax rates All these solutions failed since the government was capped by rising demonstrations. Reducing public expenditures Severe job cuts Greece faces prolonged austerity and the auction sale of the country’s assets so that foreign governments and banks can get their money back
  12. Thank you Dr.Mohamed Zaky
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