GREEK DEBT CRISIS which is burning topic of this hour across the world. There is much anticipation of this topic to be in the exam. This topic is crucial from the point of view as an Essay as well as General Awareness.
Since, Greece is the current interesting issue in the world and the downfall of its economy has been discussed. The financial crisis affected the entire economy, thus the topics are interrelated to each other. Hence the crisis affects all the sectors in the country. Thus the reasons for the crisis and its impact have been outlined in this article.
Greece became the tenth member of the European Union in 1981 which ushered the period of remarkable sustainable growth in the country. The country aimed to raise their standard of living to unprecedented levels which would be achieved by widespread investments in industries, growing revenues from tourism and shipping. The country then adopted the Euro in 2001. In 2004 Greece hosted the Olympics games.
The roots of Greece’s crisis are simple. Before Greece joined the Eurozone, investors treated it as a middle-income country with poor governance — which is to say, a credit risk. After Greece joined the Eurozone, investors thought that Greece was no longer a credit risk — they figured, if push came to shove, other Eurozone members like Germany would bail Greece out. They were wrong. After joining of Greece as the Eurozone member, investors began lending to Greece at about the same rates as they lend to Germany. Faced with this sudden availability of cheap money, Greece began borrowing like crazy. And then, when it couldn’t pay back its debts, it turned out financial markers were wrong: Germany and other Eurozone nations weren’t willing to simply bail Greece out. That led the market to panic around 2010, and you can see interest rates on Greek debt spike once again. Those high interest rates make it basically impossible for Greece to borrow, and that makes it impossible for Greece to pay its debts.
The result: Greece is insolvent and the Eurozone isn’t as tight a union as the financial markets — and maybe the Eurozone’s member states — believed. That’s the crisis.
Greece’s debt-to-GDP ratio is an insane 172%, It’s much higher than any other country in the Eurozone. But making matters worse is the fact that the financial markets no longer see Greece as debt-worthy. No one wants to lend to Greece at reasonable rates, and so Greece can’t keep paying to service its current debts while carrying out basic government functions.
The latest round of the Greek crisis began when Greece rejected its two main political parties in favor of the far-left Syriza. The main reason? Syriza promised to free Greece from the grinding austerity that was leading to such widespread human misery. The only problem? Syriza had no actual plan for freeing Greece from austerity; they tried to renegotiate the terms of the Eurozone’s support for Greece and came away basically empty handed. And so Syriza is asking the Greek people to vote on whether to accept the Eurozone’s terms — and, by proxy, to remain in the Eurozone. The vote is basically a final, desperate ploy for leverage, and one that’s likely to fail. Either the Greek people endorse more of the same, which Syriza doesn’t want, or they reject the Eurozone’s offer, and basically have to leave the Eurozone, which would also be a disaster.
Over the past six years, Greece has experienced an economic depression on the scale of that experienced by the United States in the 1930s. Its economy has contracted by around 25 percent, its unemployment rate has exceeded 25 percent, and its youth unemployment has risen to over 50 percent.
At the same time, despite five years of budget austerity and a major write-down of its privately owned sovereign debt, Greece’s public debt to GDP ratio has risen to 180 percent. At the heart of Greece’s economic collapse has been the application of draconian budget austerity within a Euro straitjacket. That straitjacket has precluded exchange rate depreciation or the use of an independent monetary policy as a policy offset to the adverse impact of budget belt-tightening on aggregate demand.
In other words, the debt crisis destroyed Greece’s economy, which in turn destroyed Greece’s ability to pay back its creditors or employ its people, which in turn forced Greece to beg the Eurozone and IMF for help and the austerity measures they demanded destroyed Greece’s economy even more.
The Greek government now faces the challenge in the economy of restructuring the reforms and to ensure that the economic policies continue to enhance economic growth and increase Greece standard of living and development in the economy.
Pursuing a strong fiscal policy which is combined with public-sector borrowing and the lowering of interest rates has been the challenge for Greece. The Central bank of Greece is also making efforts to increase borrowings at low interest rest in order to stabilize the economy.
The Government should reduce its expenditure and hence domestic products need to be encouraged. As the excess of exports would enable finance the deficit in the economy. Also it will lead to rise in GDP thereby leading to decline in rate on unemployment.