European Economic Crisis -- Greek Government
This paper provides a deep insight into the European economic crisis and the events which eventually lead up to Greece debt crisis. It explains the causes which were responsible for the chaotic and poor financial situation currently prevalent in Europe. It also analyses the current tools used for stabilizing the situation in Greece and the shortcomings in them. It also highlights certain steps and measures which can be taken in improving the current scenario.
Occurrence of Greek Debt Crisis
Core Causes of Financial Crisis in Greece
Extensive Money Borrowing at Low Interest Rates
Misrepresentation of Public Records
Inappropriate Business Environment
Inefficiencies in the Public Sector
Greek Domestic Policy Responses to Debt Crisis
Austerity Measures
Structural Reforms
Financial Assistance from Eurozone Member States
Financial Assistance from IMF
5. Pros and Cons of the Greek Debt Crisis Issue 12
Prospective Solutions for Dealing with the Debt Crisis in Greece 14
6.1 Growing the Economy out of Debt 14
6.2 Monetizing of Debt 15
6.3 Restructuring or Defaulting of Debt 15
6.4 Detachment from Eurozone 16
6.5 Issuance of Eurobonds 16
6.6 Fighting off Corruption 16
6.7 Establishment of a Credible Tax Audit System 16
6.8 Establishment of a Credible National Agency 17
6.9 Policy Requirements 17
7. Bibliography 20
European Financial Crisis -- Greek Government
The debt crisis engulfing the European Union (EU) is immensely threatening to the economic and political conditions in Europe. The economic and financial crisis has shaken the foundations of European construction, more precisely; it's most visible and successful symbol -- the common currency, Euro. Debt crisis in EU attributes to the inability of some countries in gaining control over the growing debt, which has pressurized the stability and survival of the European currency, Euro (Todorivic and Bogdanovic 2012). The mounting debt and budget deficits of some countries of European Monetary Union caused the reaction of financial markets that punish countries with high debts by increasing prices of their additional borrowing. The inability of adjusting with exchange rates forces pressure in labour market and unemployment which further alleviates pressures with fiscal slippage (Adrain 2012). Minescu (2011) believed that the core reasons behind the current European financial crisis are low risk premiums, strong leveraging, elongated time periods of rapid growth of credit, abundant availability of liquidity and the soaring prices of assets. European banks lent billions to financially struggling nations and are now at the stake of facing huge losses, which could in turn cause the crisis to spread to more stable nations and the United States. All the EU countries thus adopted austerity measures for improving the fiscal strength and competitiveness. EU leaders adopted Euro Plus Act which included the commitment of each country to introduce a balanced budget amendment as a part of their national law. The debt crisis in European Union clarified the fact that an economic model based on the financing of consumption through borrowing would not bore fruit in the future (Todorivic and Bogdanovic 2012).
Occurrence of Debt Crisis in Greece
The economy of Greece has functioned as a relatively closed economy for decades bearing a characteristic large public sector. Tourism and ship building are the core sources of state revenue, yet the state faced a downfall in the industrial production. The reliability of Greek economic indicators has been questioned by the European Union and its position was quite curious even before the European crisis. Greece got an easy-access to longer-term borrowing due to the under-pricing of default risk. Statistics indicated that the general government revenue as a percentage of GDP has consistently remained lower than government expenditure in Greece (Taylor 2011). Greece was engulfed in the flames of large budget deficit, public debt, current account deficit and the decline in competitiveness. One of the fundamental reasons for the occurrence of crisis in Greece was the large amount of borrowing in international capital market for financing the current account deficit and the budget deficit. The delay in implementation of structural tax reforms and pension systems was also a contributing factor towards Greece's debt crisis. Poor collection of budget revenues, tax evasion and high government spending were the significant internal factors of the debt crisis. The accumulation of foreign debt mounted up drastically due to the external factors comprising of easy access to external capital markets at a lower rate after joining the EMU, and poor application of EU rules concerning public debt and budget deficits (Todorivic and Bogdanovic 2012). Greece faced the prospect of sovereign debt default due to the downgrading of Greece debt...
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