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What Happened in Greece and Euro Zone: Facts behind the Crisis

Updated on March 2, 2016
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IRSHAD. CV is a graduate in Economics. One of his interesting areas of writing is global affairs

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Introduction

What are the basic rights of people? It is much harder to answer to this question. Because people are different and also their demands too. At the same time now people are more aware of their rights. Simply people wants live in a peaceful society with dignity and better quality of life. But sometimes, the system, of their environment made them to live as like a prisoner. Now people irrespective of national borders are facing various problems of political instability, social insecurity, economic meltdowns, unwanted threats in the name of religion and creed, demographic tensions and so on. Whatever the problem may be, the ordinary people suffer a lot.

Recently, Greek society witnessed one of the great economic crisis as an impact of financial crisis of 2008. Now another question may arise that, Why Greece is still under the trap of the crisis even after seven years? Basically the 2008 financial crisis arose from United States and spread all around the world and badly affected the sustainability of advanced countries. Any how the fact is still remaining that, Greece is in the economic crisis. Here this essay is aimed to highlight some of the key facts of Greek economic crisis.

The Crux of Greek Economic Crisis

The Greek economic crisis is a story of about last one decade particularly after 2007. The main reason of the economic meltdown is the budget deficit condition of Greece government. The government failed to collect tax revenue from its citizens. This finally led to the deficit budget. The government spending was much higher than the government revenue. Further the government also required to pay the debt and interest of previous years. In fact the financial condition of Greece put them in to more and more challenges.

Greece approached many private as well as government funding sources from within and outside the country. The economy adopted various measures to bring the economy out of the crisis. But most of the actions were failed. In fact the economy faced series of setbacks such as poverty, debt crisis, unemployment, inflation, inefficient economic conditions etc.

Misery Index of Greece
Misery Index of Greece | Source

Unemployment in Greece- Post Crisis 2008

Year
Unemployment (Percentage)
2007
8.4
2008
7.8
2009
9.6
2010
12.7
2011
17.9
2012
24.5
2013
27.5
2014
26.5
2015 April
25.6

a) Poverty and Unemployment

As an impact of this economic recession, the country faced acute poverty and unemployment. Such things badly affected the standard of living of the people. Nowadays, an estimate of 2 out of 3 Greek youths is unemployed. The total unemployment of the country estimated about 25 percentages. Another report says that, 37 percentages of the Greek are unemployed and contributed just 15 percentages to the total tax revenue to the government. This high number of self employed made inefficient accountability of monetary transactions. At the same time when consider the European Union as a whole, only 15 percentages are self employed, but unlike the Greek condition this 15 percentages of the people paid 25 percentages of the tax revenue in the region. After the 2008 financial crisis, unemployment rate of Greece has increased drastically. In 2014, the unemployment rate of Greece reported as highest in European Union at 26.5 percentages. The European Union unemployment rate was only 10.2 percentages. Similarly, Gini Index (for measuring inequality) is also higher in Greece compared to other European nations. More than 30 percentages of the people reported as below poverty line in 2012, which includes middle class Greek families. Another report related to social insecurity is that, the suicide rate of the country. It has increased by 26.5 percentages in 2011. Another data is that the suicide rate among women increased by 104 percentages.

b) Weakened Social Organizations

Under any condition of intolerance, social and political organizations have to do a lot. Without their activeness, it is almost impossible to uplift any society. But in the case of Greece, these hopeful forces were failed to cure the economic crisis. In 2009, a government came in to the power and proceeded with Troika program with the support of European Union, European Central Bank and International Monetary Fund. But it was a hope and all the actions were failed. After the economic crisis of 2008, the Greek people witnessed political instability and many resignation, most of the governments were failure in curbing of the economic and social instabilities. By the way, the investors withdrawn from their investments and only the speculators exploited it. In fact the people of Greece fell down in to the condition of losing their rights and hope. The negative investment factor created the economy of incapable in efficiency and competitiveness. The Greek economy shrunk almost 25 percentages of its economic indicators. By the time, when Greece received help from International Monetary Fund (IMF), there was a hope. But in actuality Greek economy grew 20 percentages smaller than the projected rate of International Monetary Fund (IMF).

C) Inefficient Economic Functioning

Any government can influence its economy largely in many ways. Budget or Fiscal Policy is the best tablet in the government to cure the economic deceases. But Greece failed to use it properly. The economy witnessed high deficit in government budget since 2007, the Real Gross Domestic Product (GDP) shows very inferior figures and inflation was almost out of control.

Mainly budget deficit was the great issue. In 2010, the government debt has increased 133 percentages of the Gross Domestic Product (GDP) and again increased drastically. On the other side, the Greek authority failed to collect tax from the people. In 2011, the employees of Greece government received salary of more than 130 percentages compared to the private salaried employees. At the same time it was only 30 percentages in the European Union as a whole. Further, the tax evasion was higher in Greece. During 2000-2007, the tax evasion rate was estimated at 27.5 percentages. In short, the percentages of deficit to GDP increased along with continuous decrease in the percentages of revenue to Gross Domestic Product GDP.

Budget Figures - Greece

Year
Government Revenue
Government Expenditure (Percentage of GDP)
2007
40.2
46.9
2008
40.6
50.6
2009
38.7
54
2010
41.1
52.2
2011
43.8
54
2012
45.7
54.4
2013
47.8
60.1
2014
45.8
49.3

After the economic depression of 2008, the Gross Domestic Product (GDP) of Greece was almost dead or negative. Similarly, inflation was out of control and reached at -2.20 by 2015 June. In fact, all the economic parameters of Greek economy show its economic meltdown.

Greece- GDP and Inflation

Year
Growth in Real GDP
Inflation Rate
2007
3.5
2.9
2008
-0.4
4.2
2009
-4.4
1.2
2010
-5.4
4.7
2011
-8.9
3.3
2012
-6.6
1.5
2013
-3.9
-0.9
2014
0.8
-1.3
Debt analysis- Greece with European Union average
Debt analysis- Greece with European Union average | Source
Creditors of Greece
Creditors of Greece | Source

Debt Sources - Greece

Lender
Amount in Billion Euro
International Monetary Fund (IMF)
27
European Central Bank
194.8
European Union
26
Others
69.2
Total
317 bn Euro

Debt Sources - Troika

Greek authority approached many private and other financial institutions for getting financial assistance. So far, Greece has received financial assistance from other members of European Union particularly from Germany and France, International Monetary Fund (IMF), European Central Bank and others. But almost all of them created nothing as positive in the economy. Among the debt sources of Greece, a program called ‘Troika’ was a special one. It was launched in 2010. Under the Troika program, three giant organizations joined together to help Greece. Te three were European Central Bank, International Monetary Fund and European Union. At the same time this assistance was based on certain terms and conditions.

One of the basic agendas was emphasized to reduce the budget deficit. So the Greece economy can revive from the pathetic conditions. As a part of this, the government cut-down the salaries and pensions of the public employees. The retirement age lifted to 67 in September 2012. Further the government imposed 6 percentages as penalty for the early retirement. These multiple actions did nothing in the long-run condition of Greece. That is why still Greek economy facing major challenges like fiscal deficit, negative inflation, dull in economic growth and so on.

Conclusion

What is urgent to do to protect the right of people as well as the sustainability of Greek economy? It is a harder task and requires many efforts to bring the social conditions back. Yes, the neighboring countries can do something as a supporter. Europe is the best example of economic integration with common policy and implications. So, it can be expected to see that the Greece would overcome its challenges. But only the single fact remains that the Greek is in urgent of a revolutionary and intellectual idea from within its region itself.

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    • icv profile image
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      IRSHAD CV 2 years ago from India, Kerala

      Thanks CRIS57 for posting your opinion. Let me see how the political system will manage the conditions in Greece

      Thanks vkwok for your valuable post.

    • vkwok profile image

      Victor W. Kwok 2 years ago from Hawaii

      This is an incredible analysis with a lot of thought and work put into it. Thumbs up, ICV!

    • CHRIS57 profile image

      CHRIS57 2 years ago from Northern Germany

      Certainly a profound summary of what happened since 2007 and what the consequences are.

      But- allow me to say - nothing about why it happened.

      Let me give a little hint. Greece was an underdeveloped country on European soil for all of the 20th century. Cheated itself into Euroland with the help of ambitious and ruthless European polititians. Lived well beyond its means ever since joining the Eurozone and still does.

      Main error was joining the Eurozone. This took away the major tools for economic adaption (currency devaluation). Leaves the only means of adaption to the labour market. Greece has way too low productivity (means too little is produced by too many). Labour market makes corrections by reducing the workforce (raising unemployment). Other means to correct would be to produce more, but that would involve significant structural reforms. These reforms are not tackled, Greece is a failed state with an almost ridiculous blame of the Troika for demanding structural reforms.

      You could make a 100% haircut. From day one on after debt reset, a new debt mountain will start to pile up. What a mess and what a sad situation for most of the Greek people.

      You are right in stating that Greece has to work on itself.

    • icv profile image
      Author

      IRSHAD CV 2 years ago from India, Kerala

      Thanks Larry Rankin and Venkatachari M for reading and posting your comments...

    • Venkatachari M profile image

      Venkatachari M 2 years ago from Hyderabad, India

      Good presentation of the crisis.

    • Larry Rankin profile image

      Larry Rankin 2 years ago from Oklahoma

      Engaging analysis.