7/17/2015

BankersAdda:Greekdebtcrisis:Essay

Greekdebtcrisis:Essay
GoodMorningReaders,
As many of you were demanding some essay topics that likely to come in
the upcoming exams. So today we are providing you, essay on GREEK
DEBTCRISISwhichisburningtopicofthishouracrosstheworld.Thereis
much anticipation of this topic to be in the exam. This topic is crucial from
thepointofviewasanEssayaswellasGeneralAwareness.
Since,Greeceisthecurrentinterestingissueintheworldandthedownfallof
its economy has been discussed. The financial crisis affected the entire
economy, thus the topics are interrelated to each other. Hence the crisis
affectsallthesectorsinthecountry.Thusthereasonsforthecrisisandits
impacthavebeenoutlinedinthisarticle.

Greece became the tenth member of the European Union in 1981 which
ushered the period of remarkable sustainable growth in the country. The
countryaimedtoraisetheirstandardoflivingtounprecedentedlevelswhich
would be achieved by widespread investments in industries, growing
revenues from tourism and shipping. The country then adopted the Euro in
2001.In2004GreecehostedtheOlympicsgames.
TherootsofGreece'scrisisaresimple.BeforeGreecejoinedtheEurozone,
investors treated it as a middleincome country with poor governance
which is to say, a credit risk. After Greece joined the Eurozone, investors
thoughtthatGreecewasnolongeracreditrisktheyfigured,ifpushcame
to shove, other Eurozone members like Germany would bail Greece out.
Theywerewrong.AfterjoiningofGreeceastheEurozonemember,investors
began lending to Greece at about the same rates as they lend to Germany.
Facedwiththissuddenavailabilityofcheapmoney,Greecebeganborrowing
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
makesitimpossibleforGreecetopayitsdebts.
Theresult:GreeceisinsolventandtheEurozoneisn'tastightaunionasthe
financial markets and maybe the Eurozone's member states believed.
That'sthecrisis.
Greece's debttoGDP ratio is an insane 172%, It's much higher than any
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7/17/2015

BankersAdda:Greekdebtcrisis:Essay

othercountryintheEurozone.Butmakingmattersworseisthefactthatthe
financialmarketsnolongerseeGreeceasdebtworthy.Noonewantstolend
toGreeceatreasonablerates,andsoGreececan'tkeeppayingtoserviceits
currentdebtswhilecarryingoutbasicgovernmentfunctions.
ThelatestroundoftheGreekcrisisbeganwhenGreecerejecteditstwomain
political parties in favor of the farleft Syriza. The main reason? Syriza
promisedtofreeGreecefromthegrindingausteritythatwasleadingtosuch
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'ssupportforGreeceandcameawaybasicallyemptyhanded.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,whichwouldalsobeadisaster.
Overthepastsixyears,Greecehasexperiencedaneconomicdepressionon
thescaleofthatexperiencedbytheUnitedStatesinthe1930s.Itseconomy
has contracted by around 25 percent, its unemployment rate has exceeded
25percent,anditsyouthunemploymenthasrisentoover50percent.
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.Thatstraitjackethasprecludedexchangeratedepreciationorthe
use of an independent monetary policy as a policy offset to the adverse
impactofbudgetbelttighteningonaggregatedemand.
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
austeritymeasurestheydemandeddestroyedGreece'seconomyevenmore.
The Greek government now faces the challenge in the economy of
restructuringthereformsandtoensurethattheeconomicpoliciescontinueto
enhance economic growth and increase Greece standard of living and
developmentintheeconomy.
Pursuing a strong fiscal policy which is combined with publicsector
borrowing and the lowering of interest rates has been the challenge for
Greece. The Central bank of Greece is also making efforts to increase
borrowingsatlowinterestrestinordertostabilizetheeconomy.
TheGovernmentshouldreduceitsexpenditureandhencedomesticproducts
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
declineinrateonunemployment.

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