This
study is centered on understanding the roots behind the fiscal crisis of Greece
and its implications and effects in the European Union. Though the issue in its
superficial level seems to be a purely national concern and not altering the
international system, knowing that Greece is first and foremost a member of the
European Union, it does has its way, though how small an economic entity it is,
vary the strength and might of the European Union.
Thus, we will first view the history and
lay down the timeline on the turning point of the Greek economy on its way to
the pitfalls of economic crisis, the Greek government’s solution to rise above
the predicament, and the international economic society’s means in aiding the
country.
After laying down the timeline, we
will determine the antecedents of the 2009 economic crisis through
understanding the failed government policies which lead to the fall of the
Greek economy. Then, in bird’s eye view, we will see the present conditions of
the Greek economy through its grassroots both in the rural and urban areas.
Though the aim of this study is to
understand the causes of the Greek debt crisis, through viewing these causes we
will understand how the International society shaped their measures in aiding
the debt-ridden country. Thus, this study will give us the full view of the
whole picture of the International society’s efforts in relation to the Greek
economic downfall.
I.
SITUATIONER
Greece is a member of the
twenty-seven-membered European Union. As a developed country, Greek economy
mainly revolves on the service sector and industry and only a small percent on
agriculture.
Early in 2009, the Greek government
suffered a major economic confrontation. It started when George Papandreou took over as prime
minister in October 2009 and found that the government had been understating
its public debts for years (Armitstead, 2012).
In 2010, the debt reached to the
heights of 290 billion Euro. An event that caused a ratio quadrupled than the
allowable ratio of the Growth Pact of the Euro Zone. This effect led to
challenges not only to the Greek government but to the members of the Euro-Zone
(Muhamad, 2011)
Policies were made by the European
Union in order to halt the Greek debt crisis’ effects to the Union and of
course to the Greek economy itself. Bailouts were given to the Greek government
to pay for these debts.
But,
these bail outs too will affect those borrower countries in turn. Thus, this
study will help us analyze how the Euro-zone will find a way out in this crisis
without leaving Greece unaided.
II.
BODY
On January 1, 2001, Greece has become an official
member-state to adopt the Euro currency, twelfth following eleven other states
in the European Union. During this particular time, Euro as a currency was
officially introduced to Greece. Possessing the same rights and obligations
with the rest of the 11 member-states, the Bank of Greece officially is a full
member of the Eurosystem (ECB, 2001).
According to one of ABC News Blogs, becoming a member of
the European Economic and Military Union takes up a process of series study on
the economy of the applying state. Certain areas are highly considered and
scrutinized to ensure that the joining of the applying state would not
compromise the stability of the Eurosystem. Criteria which bases the membership
of a European state includes inflation rate, budget deficit, public debt,
long-term interest rates, exchange rate. Unfortunately for Greece (with no
specific reason found in this research) used the country’s 1999 data, which
took a dismal miscalculation of the criteria mentioned. As a result, a 2004
audit found out an under-stated budget deficit in the country’s economic
statistics.
Shuttling upward, public sector wages creased causing a soaring
public spending—a good indication and sign of a rising economic future. But
despite these raises in income and spending, massive tax evasion cases sprouted
which obviously ruins the natural fiscal flow of the country (Hamilton, 2012). It
is simple logic that when people and certain businesses in the country don’t
pay its taxes, government will receive lesser and lesser revenues which in turn
would affect the execution and carrying out government policies, programs, and
projects. With no inflow of revenue, time will come that the coffers of the
government will be emptied or at the least depleted dramatically. Thus, with no
other option for the government to continue running, governments loan money
from more capable states and willing organizations. This is what happened to
Greece—a more serious and grim situation than this though.
In Dimitri Vayanos research, Greece’s external debt rose
to a very high sum which reached to almost twenty times to the country’s
education spending. In his research, 82.5% of the country’s GDP comprised the
whole Greek foreign debt (Cabral, 2010).
What made Greece unable to pay its debts can be
explained simply through the idea of loans and money borrowing. When countries
(or even people for that matter) borrows, it consumes more than what it produce
out of it. The money borrowed from foreign sources was used by the Greek
government to finance the regular government processes (e.g. wages and payments
to public servants, infrastructure projects, financing government programs and
etc.). Most of these could not return back investments due to what were
mentioned earlier like massive tax evasion cases, thus to pay a previous loan,
or even to pay just the interest, Greece borrows from another source or
repackages another borrowing deal. This, compounded with the fact that Greece
has an outstanding deficit, made a cycle went on and on—making a huge snowball
from an ordinary snowflake. What made all these even worse is the onslaught of
the global financial meltdown that totally left Greece on its knees, unable to
get up.
How this domestic fiscal problem of Greece does affect
the European Union and the World might be the most intriguing questions the
world might have in their minds. Simple. European Union made one single
currency to all its members to be of help in times of needs when a member-state
is in need of one. With the same currency, funding through these states in need
will be a smooth flow. But, what happens here is that when the global financial
crisis struck, it has also affected the European Union much, leaving an EU
lesser capable of aiding its member-states. And since the situation has already
been baked, now that states like Greece and Portugal are in need, countries
with stronger economies will now have the burden of aiding to the needs of
these debt-ridden countries. Thus, Greek debt crisis crucially affects the rest
of the members of the European Union, especially those stronger powers like
that of Germany.
Now, the Greek government revaluates its policies and
laws, hand in hand are the programs and plans of the Union to alleviate the
demeaning situation of the Greek economy. For example the European Central Bank
of EU and the International Monetary Fund announced a major financial
assistance of a three year package of €110 billion (about $158 billion) with
and the IMF pledged to contribute €30 billion (about $43 billion)for Greece
with an agreement that the Greek government will commit to a renewed economic
reforms. Another is on July 2011 when the organization set another crisis
response, and made another package and calls
for holders of Greek bonds to accept losses, as well as for more austerity and
financial assistance (Nelson, 2011).
Recent evaluations have observed that though policy
applications do not prove much of a great assistance to the bloating Greece
debt, many believe that the policies achieved the aims which are aimed to
prevent a disorderly Greek default, to restore
debt
sustainability in Greece, and to prevent the spread of the crisis to other
Eurozone countries and the global economy. The first one is a sure success but
these two others are still on the process of realizing though.
III.
CONCLUSION/ RECOMMENDATION
The Greece debt crisis is no more or less than
experiencing the same economic and financial problems with most of the developing
nations of the world. Some might even be experiencing even worse. The Greeks do
not really suffer pressing problems like famine, hunger and poverty. But, one
thing sets Greece apart to the rest of the nations who share the same fate,
Greece is tied up with 11 more nations which have economies of their own
through the European Union.
With this possibly irreversible fate, more stable states,
or even powerful states suffer with the responsibility of rebuilding the Greece
economy so as to prevent a slow collapse in the Union. With a less than
powerful European Union after the 21st century global financial
meltdown, European Union is too weak not to be affected by the dilemma of this
singular nation.
It might take many brilliant minds to solve the Greece
financial crisis and the European Union tangled fate on the nation, but one
thing is certain, with a more collaborative and cooperative atmosphere within
the Union and to the rest of the world state and non-state actors, Greece will
soon find a way out.
The Greece’s
pressing problems to date is the high debt, high deficit and a low
competitiveness in its market and industry. This singular fact is the main
cause why Greece’s possibility of borrowing money to other states and
organizations is compromised and blocked with high interest rates. That is
simply because, these states too are concerned of their own interest—and by the
looks of the Greece’s situation, lending Greek government the money might put
theirs in jeopardy.
Thus, the only way how Greece can set itself free, or to
the least improve its current situation is to solve the three pressing
problems. They must start with the third and last problem—and that is through
revaluating and improving the low competiveness of Greece’s industry and
market. With the success of improving tis economy, governments across the globe
will no longer loose its confidence of letting Greece borrow their funds to
rebuild its own economy.
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