Greeces economic crisis
In the conditions of current globalization and transnationalization of the world economy, impact of the financial crisis on the situation in various countries has become quite significant and, probably, the most significant in the history of mankind. These days, many European countries experience an economic crisis. Greece is one of these countries as the current economy of this small southern European state has come under a powerful punch and is undergoing significant changes. The aim of the current paper is to highlight in details the issues related to the current state of affairs in the country to better understand and analyze this phenomenon.
Greece is a country with rich and ancient history. Greece was, of course, the cradle of European civilization . It is a country of great beauty where the residents enjoy the sunny weather all year round. The azure sea and favorable climate contribute to the development of the agricultural sector in the country. Greece is an exporter of a great number of high quality goods including olive oil, olives, wine, cosmetic products, and fur. In addition, the country is a developed tourist center. Thousands of tourists from all over the world visit Greece each year. All this should lead to the fact that Greece should be a fairly prosperous country in economic terms. However, these days, the country is experiencing a serious economic crisis that became noticeable in 2009 . Nevertheless, conditions for the crisis began even earlier.
Greeces economy in the pre-crisis period was significantly different from the present one. Economic growth was quite significant in the 2000s, which enabled the country to comply with the so-called Maastricht standards and to join the European Union . In addition, the rate of growth of the Greek economy in 1994 showed acceleration to 3.2% per year and was higher than the average rate achieved by the EU . Greece had made enormous economic progress . In 2000, GDP increased figures by 4.1%, thus, remaining above the EU average . The inflation rate was also insignificant and constituted 3.2% in 2000 and 3.4% in 2001 . The growth of industrial production was also considerable. Conduction of the Summer Olympics in Athens in 2004 contributed to investments in the Greek economy . This fact eventually brought the country to the leaders of economic growth among member countries of the European Union.
Despite the positive sides mentioned above, the further development of the situation deteriorated. Nowadays, it has changed significantly for the worse. Following a decade of fast economic growth and notable achievements, such as the hosting of the 2004 Olympic Games, Greece was the first and most severely hit member of the eurozone . Although in early 2008, GDP showed an increase in annual terms, it was already 1% decline in foreign investment and the import of foreign products in Greece decreased by 4.6% in the first months of the year. In these strange signs, no one saw the beginning of impending problems . The Greek stock market losses amounted to about 70%. The excess of capital was replaced by a deficit in the payment funds of the banks. International maritime and ocean transportation declined. By early 2010, a large-scale economic and political crisis threatened Greece. The countrys total debt exceeded EUR 300 billion . Only in 2009, Greece borrowed EUR 80 billion or 30% of GDP .
The problems of the Greek economy became apparent in 2009 when the government of the country recognized the fact that the budget deficit reached 12.7% of GDP . It is in spite the fact that according to the standards of the European Union, this figure should not exceed 3% of GDP . Despite the decision to reduce budget spending, increase taxes, and raise the retirement age, the situation has continued to deteriorate. In 2010, Greece formally requested financial support from the European Union and the International Monetary Fund as the country was unable to cope with its debts. That same year, the EU approved a package of financial assistance to Greece in the amount of 110 billion Euros. The EU paid 80 billion, of which 22 billion Germany and the IMF 30 billion . In exchange, Greece has pledged to pursue a policy of rigid economy. As a result, public debt exceeds 324 billion Euros and almost 180% of gross domestic product . Policy of rigid economy, spending cuts, and privatization of state enterprises, which led to the drop in gross domestic product by 25% and a sharp decline in living standards, caused a wave of national strikes .
The development of the crisis led to the fact that German Chancellor Angela Merkel has threatened to exclude Greece from the Eurozone . According to the Chancellor, the countries of the European Monetary Union must meet a number of macroeconomic indicators laid down in the Maastricht criteria. Otherwise, the collaboration is impossible.
The previous year was especially tough for Greece. Last year was tumultuous, punctuated by two elections, a referendum, the imposition of capital controls, negotiations to reach a bailout deal, cliffhanger parliamentary votes and Athens closest brush yet with bankruptcy and euro exit . The new government led by Prime Minister Alexis Tsipras has noted that Greece expects the restructuring of the debt. Nevertheless, the negotiations between Greece and the European Central Bank, the IMF, and the European Commission were unsuccessful. The government of Greece accuses the austerity policies imposed by the creditors. However, lenders argue that Greece neither conduct the required reforms nor collect taxes and spends a lot. Nevertheless, in reality, the Greek Government takes a middle position compared to other countries on the interest expense in relation to the whole economy .
According to many experts, the crisis was inevitable . It is mainly associated with the implementation of a new currency. The roots of the Greek crisis are closely linked to the introduction of the euro as a common currency of the member states of the European Union. However, the introduction of a single currency was always more a political program aimed at supporting the unification of Europe rather than a carefully planned economic project. The main problem of the Eurozone is that the level of the economies of its members is extremely different. It is practically impossible to introduce a single inter-state fiscal policy, which would meet the interests of all states. In addition, differences in traditions, nationality, and languages limit the movement of labor between countries within the area. When each country had its own currency, it could always rebuild and develop its economy, if necessary, through the devaluation of its currency. However, within the single currency system, lagging countries can do so only by cutting salaries and expenses. It is exactly the dilemma faced by Greece.
The reason why German and Frenchs banks lent so much money to Greece is associated with the fact that loans issued to Greece, in reality, did not reach the destination, or rather a very small fraction remained in Greece . These loans immediately went to private creditors including banks of France and Germany, to pay the interest. The Greeks paid a very high price for keeping the banking system of these countries. France and Germany economically benefit from the crisis in Greece. The weak single currency increases the competitiveness of European exporters.
There are several opinions regarding the further economic situation in the country. According to the prime minister of Greece, with the help of the aid package provided by the European Central Bank, the EU, and the European Monetary Fund, the state should wait for fundamental changes and the improvement of the political situation . However, not everyone is so optimistic. In contrast to the prime minister, many experts state that the situation in Greece will only become worse. Besides, even the population of the country is pessimistic according to the conducted polls .
The Greek crisis takes place at a crucial and difficult time for Europe. The threat of terrorist attacks in Europe, the influx of refugees from Syria, and the crisis in Ukraine is a small list of the problems facing Europe. Great Britain will hold a referendum on its stay in the EU. Exit of Greece will strengthen the centrifugal forces in Europe. If Greece leaves the eurozone and Great Britain will leave the EU then the very existence of the EU will be under question because other members will consider and plan for their future outside the EU.
Studying the information about the economic crisis in Greece, I would buy Greek Government bonds today. It is associated with the fact that buyers of bonds should repay them before the creditors of Greeces public sector. In turn, it gives certain confirmation that a person is able to receive the money back. Despite the fact that the credit ratings of Greece and its financial institutions came close to default level, investors are in no hurry to leave the country. It is associated with the fact that everyone is sure that Greece will be saved.
The economic crisis in Greece is a good example for other less developed countries of the European Union. Only developed countries and corporations benefit from the membership in the Eurozone. Thus, international and social inequality increased. Before the entrance into the European Union, Greece was a stable country with a developed economy. The crisis has deep roots and is associated primarily with the introduction of the euro. These days, Greeces economic crisis has not decreased. However, there is an opinion that a new year can bring new opportunities for the country. There are several possible consequences of the crisis, such as the collapse of the eurozone and the EU disintegration, as well as strengthening of leftist parties.
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