Greece Crisis or Greece’s Debt Crisis is one event which bewitched every nation around the world in 2015. It was the third bailout for Greece in past five years. Starting from the past in early 1990’s when they were using Drachma as their currency they ran into significant budget deficits as a result of economic mismanagement.
In order to utilize the growth of Eurozone which was using only one currency by many nations, it joined Eurozone in 2001 which showed a growth till 2007. Many analysts pointed out that this growth is unsustainable saying that Greece is taking a cheap loan from Eurozone.
When sub crime crisis showed up in 2008 every nation in Europe was affected and Greece is also one among them, due to this subprime crisis, all the private cash flows were dried up.
- GDP growth rates- The Greek national statistical agency had anticipated that after 2008 GDP growth rates were lower. The ministry directed to improve competitiveness by reducing salaries and bureaucracy and revamp its current government spending from non-growth sectors such as military into growth stimulating sectors.
- Government deficit- There was a huge fiscal imbalance occurred during the five years from 2004 to 2009, as output increased in nominal terms by 40% while central government primary expenditures hiked by 87% against an increase of 31% in tax revenues. The fiancé ministry of Greek intended to implement parliament real expenditure cuts. Also, the overall revenues were expected to 31.5% during the year 2009 to 2013.
- Government debt level– In 2009, it was mainly deteriorated due to higher than expected government deficit and high debt-service costs. At that time, an urgent fiscal consolidation plan was needed to ensure that the deficit would decline to a level suitable with a declining debt to GDP ratio. The government imposed that it was not enough to adopt structural economic reforms, as the debt would still increase to a level before the positive results of such reforms could be achieved. On this basis the government’s report emphasized that in addition to implementing the needed structural economic reforms, there was an urgent need in the coming four-year period to implement packages of both permanent and temporary austerity measures (with a size relative to GDP of 4.0% in
2010, 3.1% in 2011, 2.8% in 2012 and 0.8% in 2013).
In October 2009, Greece said it was understating it deficit for years created an alarm and it has been shut out from borrowing in financial markets. By spring 2010 Greece was at the stage of bankruptcy. Due to this lot of funds have been pulled out from the government bonds.
In 2010, it was forced to seek help from Troika.
International Monetary Fund (IMF), European central bank (ECB) and European commission –these three formed a TROIKA which issued first of two bailouts which came along with conditions like increasing the taxes, cutting down the pension funds and Budget cuts.
In 2012, Greece had the largest sovereign debt default of 107 billion euros. In 2015, it was the third bailout for Greece in past five years, everything happened in Greece can be due to inefficient government and its false policies. The total debt that Greece had was around 320 billion euros.
Basically, all the problem with Greece is that their expenses are higher than their revenues, they paid a lot of money in pension funds, and their income from taxes are less when compared with their expenses. So they had to borrow money from creditors. The Crisis occurred when creditors (International Monetary Fund) asks for its money and debtor (Greece) couldn’t pay back.
It was expected that Greece would be forced to exit Eurozone but Greece didn’t exit Eurozone because EU has rules to protect its member countries because it would affect the entire EU.