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Greece financial crisis lessons to the world
Could financial crisis in Greece be the lesson for other countries?
With Greece accumulated billions of euros in debt to the European Central Bank (ECB) and other financial institutions in the European Union, it is the sign of much worse economic situation to come not just to Greece and Europe but also to whole world. But could the Greek financial crisis be the important lesson for other countries so that it will never happen to them? Here are these bottom line that ought to be considered by other countries in their own financial system to fare better than Greek government do.
Fiscal policy generally the amount of spending and earnings dictated by government. For Greek case and for other Eurozone country, the uncontrolled spending on government expenditure was the main factor in accumulation of high debt and spending far exceed the amount repaid. The expenditure of Greek government which previously less before joining the Euro has skyrocketed high following the ease of obtaining the cheap credit from the ECB, so high that no one notice how much they spent until the crisis strike.
Monetary policy generally dictation by a central bank on interest rates and amount of money in the market. For Eurozone the main monetary body are the European Central Bank (ECB). It was a powerful financial mandate by a single central bank based in Frankfurt, but its inability to control the amount of money spent by each Eurozone nations means that ECB are the financial helper and the financial burdened at the same time. And the ECB will play a brutal role in saving the Eurozone economy which will be discussed later at austerity part.
Taxation are crucial in a country for government earnings. How the nation collects and manage their wealth is depends on its taxation system. For Greek case, their main weakness is the government inability to impose or collect tax efficiently. This problem already dates back to the period before Greece joins the Eurozone, and it still plagues the Greek government today, which is the main contributing factor in the Greek economy crisis.
People priority against political importance
Wealth amassed by government can be freely spent on any expenditure. How much is spent on what is a subjective matter. For Greek case, the abundant of cheap credit from joining the euro means Greece have access to more borrowed money for public expenditure. This is only beneficial in short run but when the government are in crisis, the people bore the brunt of the crisis instead. And even worst, the public expenditure itself either have to be mortgaged or left as white elephant. People lose job in public sector, and indebted public sector service were also forced to be bailed out.
Austerity and its perceived threats
As Greece and other Eurozone countries enters default, Germany and other European economic powerhouse only agree to bail out when the indebted nation implement strict austerity measures. Austerity measures specially means borrow less, raise taxes, pay back more, and cut expenditure. It looks simple but implementing it is painful and chaotic like what happens in the strings of protest throughout Greece in past years. People become unemployed, social benefit by government is reduced, and people trust in government is fading.
Misconception on power of currency
When euro was introduced in 1999, it was supposed to unite most European nations under unified economy system with equal currency. It looks like euro are the strongest currency compared to original currency for each nation prior to joining the euro. How wrong they were. Euro maybe strong currency but it is meaningless if European fail to exploit the wealth it can bring from a unified currency and instead perceive the currency as strong forever without thinking of future crisis. Not even some nations like United Kingdom which still retains its pound, and Switzerland which still retains its franc plans to adopting the euro anytime soon since their own currency is already stronger.
Level of human prosperity
As soon as a European nation joins the Eurozone, the easy availability of cheap credit allows not just the Greek but also almost all Eurozone member citizens to enjoy luxury life. The now have the money to upgrade their homes, buy new cars, travelling overseas, purchasing luxury goods, buy financial assets. It’s a financial bubble. But someday the bubble will burst if the spending goes uncontrolled like what happened in Greece in 2008. Now most people are suffering the consequences of the boom year which leads to their downfall.
Level of country development
As soon as a European nation joins the Eurozone, their economic development is at the developed state. Due to abundant of cheap credit from the earlier mentioned ECB, funds for government funded development project helps in raises the country development level that is only if the fund is constantly available. When financial crisis strikes Greece, not only debt was the issue, but the public property that was once developed were forced to be sold to other parties, stunting the economic growth.