Imapct on Europe:

Greece is approaching the climax of its crisis, and its choices will influence the course of Europe for
years. Although Greece represents only 2% of the European Unions GDP, the impact of those
choices will be wide. The Greek crisis is fundamentally the result of its membership of the
eurozone. Greece is paying the price for a belief in the ancient fallacy that possessing hard money
puts a weak economy on a par with the strong. In reality, hard money is more likely to destroy a
weak economy, a lesson about to be re-learned in Portugal, Ireland and Spain. Greece is heading for
an exit from the euro and the rest of the eurozone periphery is likely to follow, with severe
implications for the monetary union. Coping with an exit will require the reintroduction of economic
controls, a major retreat from the neoliberal, pro-market approach to economic policy.
The destruction caused by hard money has spread unevenly across Greek society. The ruling elite
has suffered minimal damage, while the impact on wage labour has been devastating. Farmers have
also been badly affected, but the gravest threat to social and political order has come from the
demise of the middle class, including small and medium businesses, the self-employed and public
employees.
On the commercial side, the exchange rate of the new drachma would collapse. In the short to
medium term a falling exchange rate would boost competitiveness, allowing Greek goods and
services to recapture the domestic market as well as expand exports. This is a vital step in reviving
the Greek economy and strengthening employment. But in the very short term, there would be
shortages of goods in which there is a trade deficit, including oil, medicine and some foodstuffs. It
would be necessary to manipulate the exchange rate and use administrative measures to tackle the
problem until the current account balance recovered.
A Greek exit would be a major event, probably opening the way for other peripheral countries to
leave the EMU. The attendant changes would seriously damage the neoliberal institutions and
ideology currently dominant in the EU. It is impossible to tell whether the euro would survive, but
there is no doubt that Europe would face enormous costs, entering a period of turmoil with unclear
outcomes

Impact on India:
Capital flows into the economy and exports are likely to take a beating. Foreign institutional investor
(FII) investment pattern is marked with high volatility. A sudden surge in investment pattern is as
detrimental as an unannounced withdrawal. A surge in FII investments will lead to increased
inflationary pressures and building of an asset bubble that could burst anytime.
India is grappling with high inflation and the central bank has raised the key interest rates a dozen
times in the past year and a half. Now, the possibility of Greek debt default affecting the European
banking and financial sectors is very real. The crisis is expected to spill over to the other European
nations that otherwise appear economically stable.
While Greece has embarked on austerity measures, the bailout package from the European
Union and IMF funds is expected to help it navigate out of its crisis. However, a rapidly shrinking
Greek economy needs a fresh lease of life. But if Greece is only the beginning, then the Euro zone
crisis could avalanche into larger trouble.
The quantum of impact of Euro zone crisis on markets here is yet to be measured. A slump in
domestic industrial growth, unaddressed agricultural woes, rising interest rates and escalating fuel

costs have compounded the global factors. A series of scandals emerging from under the carpet
have diluted the faith of foreign investors.
The market volatility has compounded with the concerns of small investors. Sectors across the board
including auto, oil and gas, metal, FMCG and healthcare took a beating. Concerns are the current
European financial crisis will curb economic growth. The risk associated with otherwise favorite
sectors such as banking has increased.
Investors have to study global trends before investing in the unpredictable stock markets today.
Have a long-term perspective when taking investment decisions.

Bibliography:
Crisis in the Eurozone, Prof Costas Lapavitsas
The euro zone crisis: Its dimensions and implications, M R Anand, GL Gupta and Ranjan Dash
Financial Stability Report, December 2012, Reserve Bank of India
Emerging Global Economic Situation: Its Impact On Indias Trade And Some Policy Issues,
Dr. H.A.C. Prasad, Department of Economic Affairs