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An essay on the Greek Financial Crisis

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The Greece Financial Crisis

 

Abstract

This paper presents a thorough analysis of the Greek debt crisis, starting with the chosen structure, methods applied for academic analysis, and a comprehensive discussion on the causal factors. A combination of both quantitative and qualitative sources will be employed for this discourse, with concentration on the period between 2007 to 2017. The study also highlights some political and financial developments in Greece within this time frame.

Greece was Europe’s fastest growing economy with about 2.9% decline in unemployment rate and increased profits in private and social enterprises before its economic meltdown, having recorded an average of 4.2% in Gross Domestic Product (GDP) between 2000 to 2007 compared to an overall 1.9% gained by the Eurozone. The EU nation also achieved a remarkable decrease in unemployment rate by 8.3% in the last quarter of 2007, an achievement which many economists believed to be a result of booming internal commerce and minimal negative contributions from external factors (Kouretas et al., 2010).

A need to sustain the economic growth led to an adoption of expansionary monetary policies with consequential positive impact on domestic demands. Subsequently, the advancing public-sector indebtedness and the private sector’s increasing debt challenge since the pre-crisis era (2000 – 2007) required financial favors from global financial institutions – the International Monetary Fund (IMF) and its “sister” banks – to boost homegrown private businesses (Afonso et al., 2008).

By 2008, Greece economy had recorded higher debt to GDP ratio compared to a significant reduction in net savings around Eurozone. The nose-diving economic situation gave rise to a series of external borrowings which were, at that time, considered as the only viable option for revival. Greece borrowed 10% of its GDP and later received 149% of its GDP due to a skyrocketing increase in government expenditure coupled with external debt servicing. This trend was maintained over two decades with the resultant overwhelming economic imbalance highlighted by foreign indebtedness and chronic imbalance which positioned Greece in a disadvantageous position.

The consequential financial and economic crisis stems from the fact that insolvent countries with huge foreign debts have higher risks of suffering neglect from the International Monetary Fund (IMF) and European Union (EU), a situation which presents even worse economic challenges due to high interest rates, devaluation of currencies and variations in interest rates. These factors have negatively affected other sectors of the Greek economy such as job creation, banking system, and local/foreign trade investment, among others.

However, Greek banks and policymakers in government circles grappled with different economic/financial measures aimed at controlling the situation but failed for an apparent imbalance between the two major options: austerity and stimulus. Failure to formulate, implement and monitor result-producing policies kept Greece in the doldrums since 2009 until it found accepted austerity rather than incentive measures but, unfortunately, the economy collapsed too fast (Antzoulatos., 2011). The country now relies on debt restructuring and bailouts to save itself from the shortcomings of austerity which proponents say is “a better evil” because it reduces economic degradation and does not leave room for recession to transform into outright economic failure.

 

TABLE OF CONTENT                                                                                     3

ACKNOWLEDGMENT                                                                                     4

ABSTRACT                                                                                                        6

chapter 1 introduction and general information                              9                      

1.1  METHODOLOGY                                                                                     12

1.2  SOURCES OF DATA                                                                                 13

1.3  SCOPE OF THE  STUDY                                                                          13

1.4  LIMITATIONS OF STUDY                                                                      14

CHAPTER 2

ORIGIN & TYPES OF THE CRISIS                                                                                       14

2.1 POLITICAL ANALYSIS                                                                                                   15

2.2 ECONOMIC ANALYSIS                                                                                                   16

2.3 SOCIAL ANALYSIS                                                                                                          20

2.4 TECHNOLOGICAL ANALYSIS                                                                                       21

CHAPTER 3

MANAGEMENT OF THE CRISIS (The Crisis Timetable & Actions Taken)

3.1 ACTION TAKEN (BAILOUT & AUSTERITY MEASURES)                                           23

3.1.1 ACTION TAKEN IN 2010                                                                                              23

3.1.2 ACTION TAKEN IN 2011                                                                                              23

3.1.3 STEPS TAKEN BETWEEN 2012 – 2017                                                                       26

CHAPTER 4

CONCLUSION AND LESSON LEARNED                                                                            29

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