The Financial Greek Crisis
The Financial Greek Crisis
Gunnar MacDougall
Macroeconomics
Greece has gained a lot of unwanted publicity in the past few years by being at the center of the economic crisis in the Eurozone. In 2009, Greece announced that for years they had been understating their deficit figures. It is all speculation on why Greece had been trying to hide its deficit figures, but it is pretty obvious that no country wants to announce that are doing extremely poorly. In response to Greece’s release of this information, they were completely shut out from borrowing in the financial markets and well on their way heading towards bankruptcy. The big questions now are: Should the Greek government declare bankruptcy and default on their loans and leave the Eurozone and create its own economy or is there a way for Greece and the rest of Europe to work through this crisis?
Before looking into solutions for the problem, it is best to get some background knowledge on the topic. In 2001, Greece joined the European Union (EU) and adopted the Euro as its currency. As a member of the EU, Greece was able to borrow an excessive amount of money for lower interest rates. Greece then funded an increase to wages and pensions instead of funding sectors that actually needed the money. This lead to the public debt of Greece to balloon. At the same time, tax evasion was very prominent throughout individuals and businesses. That means tax revenues couldn’t balance out the increased pension funds. Greece’s debt to GDP ratio was at 113% in just 2009 and is now estimated to be around 175% (Nath).
Investors lost all confidence in Greece and international ratings agencies changed the country’s credit rating to junk status. On the one hand Greece could no longer borrow those excessive amounts at a low interest rate any longer. That is only because the interest rates for borrowing for them become so high that if Greece borrowed from anyone it would be 20 times worse. Greece began to spiral out of
Gunnar MacDougall
Macroeconomics
Greece has gained a lot of unwanted publicity in the past few years by being at the center of the economic crisis in the Eurozone. In 2009, Greece announced that for years they had been understating their deficit figures. It is all speculation on why Greece had been trying to hide its deficit figures, but it is pretty obvious that no country wants to announce that are doing extremely poorly. In response to Greece’s release of this information, they were completely shut out from borrowing in the financial markets and well on their way heading towards bankruptcy. The big questions now are: Should the Greek government declare bankruptcy and default on their loans and leave the Eurozone and create its own economy or is there a way for Greece and the rest of Europe to work through this crisis?
Before looking into solutions for the problem, it is best to get some background knowledge on the topic. In 2001, Greece joined the European Union (EU) and adopted the Euro as its currency. As a member of the EU, Greece was able to borrow an excessive amount of money for lower interest rates. Greece then funded an increase to wages and pensions instead of funding sectors that actually needed the money. This lead to the public debt of Greece to balloon. At the same time, tax evasion was very prominent throughout individuals and businesses. That means tax revenues couldn’t balance out the increased pension funds. Greece’s debt to GDP ratio was at 113% in just 2009 and is now estimated to be around 175% (Nath).
Investors lost all confidence in Greece and international ratings agencies changed the country’s credit rating to junk status. On the one hand Greece could no longer borrow those excessive amounts at a low interest rate any longer. That is only because the interest rates for borrowing for them become so high that if Greece borrowed from anyone it would be 20 times worse. Greece began to spiral out of
Cited: Alderman, Liz. "Explaining the Greek Debt Crisis." The New York Times. The New York Times, 8 Apr. 2015. Web. 20 Apr. 2015. Nath, Trevir. "How A Greece Crisis Affects The U.S." Investopedia. Investopedia, LLC., 7 April 2015. Web. 20 April 2015. Roberts, Dan. “Greek Debt Crisis: How Did the Greek Economy Get into Such a Mess?” The Guardian. 6 May 2010. Web. 20 April 2015