Greece
Crisis is an example of over expenditure met by debt
borrowings and default in payments schedule with a GDP in downward trend from
7.7% on year to year basis till 2000 goes to -Ve.
Debt payment was done by borrowing from other
financial institutions each time till it default more recently.
Greeks enjoyed the lavish life with a living standard
ranked 21st in the world till recently unless the recession crept in
by 2008 and the government starts taking austerity measure to meet the
repayment schedule very recently by the beginning of 2010.
Athens being the capital of Greece with “Drachma”
was its currency till 1999 prior to adopting Euro by 2001.
Shipping
and Tourism are the main sectors contributing GDP.
Greece is facing Debt crisis since it has accumulated high level debt during
the decade before financial crisis when the market was highly liquid.
As the market faces financial crisis there was
liquidity crunch in world economy thereby making borrowing difficult as well as
expensive and this makes difficult and irregular of repaying the debt.
This was due excessive expenditure, mismanagement,
unregulated labor market and obsolete pension system.
US sub-prime crisis by the end of 2008 had a large
impact and further deepens the crisis to Greece as volatile capital markets due
to liquidity crunch resulted in lower capital flows. Strict norms were made for
banks to grant loans and rates were also increased thereby borrowings becomes
costlier and difficult for Greece. This had a large affect on shipping and
Tourism of Greece which was prime contributor to GDP.
It was forced to borrow heavily from the world
market to fund Government Budget and account deficit and accumulated high level
of debt before the financial crisis or the recession took place.
During this period Government expenditure
increased by 87% whereas economy grew only by 31%.This resulted in Rising
unemployment, Tax evasion and corruption.
Greece foreign policy largely focused on
neighboring countries (Romania, Bulgaria, turkey)were also under the grip of
recession.
The Europian union
IMF,and the ECB sets up Tripartite committee(TROIKA) to prepare program whereby
in May 2010,3 years package of Euro 110 billion was declared and ECB provided
substantial liquidity support to Greek’s private Banks Euro 51 billion(b/W Jan 2010 to May 2011).
Euro zone provided
again a loan of 109 billion in July 2011.ECB purchased bonds valued 78 billion
from Greece Govt.
EU also made a
proposal to make a single authority responsible for Tax and Govt.spending.
Three consecutive
austerity measures were taken in Feb 2010, May 2010 and Jan 2011 whereby
salaries, leaves Bonus, pension and various perks were cut (almost Euro 40
billion) which resulted in large scale protest.
G20 leaders come up
with plan to protect Banking system against crisis by recapitalizing the banks
so that they can absorb the losses without going bankrupt.
France and German
trying to save Greece being bankrupt it defaults. Greece FM told to resolve the
crisis and US is putting pressure on EU to save Greece otherwise it will lead
to double dip recession.
Now due over public
expenditure and over borrowed, Greece is on the verge of default. Greece Govt
is taking tight austerity measure to bring down budget deficit to 0.9% of GDP
by 2015.
Now the EU is in
dilemma whether to save Greece or let it go default.
Greeks are going for referendum on Sunday and have to vote in terms of YES or No but people are totally confused about the questionnaire which will decide Greece's relationship with European union.
