Euro Crisis

The roots of Greece’s economic problems extend deep down into the recesses of history. After the government dropped the drachma for the euro in 2001, the economy started to grow by an average of 4% annually, almost twice the European Union average. Interest rates were low, unemployment was dropping, and trade was at an all-time high. However, these promising indicators masked horrible fiscal governance, growing government debt and declining current account balances. Greece was banking on the rapid economic growth to build upwards on highly unstable foundations. In 2008, the inevitable happened – the Greek debt crisis.

As of 2014, Greece -along with other nations of the Eurozone- is facing grave sovereign debt issues, which have helped worsen the economic and political aspects of the nation. Some members, like the case of Ireland, Portugal, Spain and the aforementioned Hellenic nation, have unendurable levels of public debt, and have been receiving aid packages from the European Union and International Monetary Fund to avoid default. However, despite these financial aids, the nation still presents economic complications that threaten to affect the country 's payments to its international commitment. Similarly, such loans and other measures taken in order to control the crisis (budget and job cuts, among others, which will be later explained) have provoked violent riots and strikes, leaving the nation in a constant state of unrest.

On January 1st 1981 Greece joined the European Communities ushering in a period of sustained growth. The countries widespread investments on infrastructure coupled with funds from the European Union led to a sharp increase in revenue from tourism and the service sector. This helped the country reach historical highs in their standard of living. By 2001 Greece had adopted the Euro and in the proceeding 7 years the GDP per capita went from $12,400 in 2001 to $31,700 in 2008, an increase of 156%. The Greek government was encouraged by the European Central Bank and other private banking institutions to undertake loans to fund foreign infrastructure projects like those related to the Olympic Games of 2004. When the financial crisis

Greece’s financial crisis has been in existence for almost two decades, and unfortunately is still widely unknown what has caused this prolonged catastrophe. The general population does not necessarily know that this economic crisis originates to a mistake made years ago, not due to the recession in 2008 that an abundance of countries around the world suffered. Greece intended to join the Eurozone, a group of European Union nations whose currency is the euro, in 1999. Initially, Greece was denied admittance due to its poor economic standing. After approximately three years, Greece was able to pose a fabrication of its own economic success, constituting a healthy economy, and meeting all financial goals that existed (Hahn). Once admitted into the Eurozone, Greece maintained the lie they initially had created in order to keep the euro as its currency. As anticipated, Greece’s budget deficit increased exponentially and soon led Greece into a recession, in which promulgated the truth of its economic stability. Greece is at fault for its own economic crisis and if it did not join the Eurozone, there is a large probability Greece would be an economically stable country.

As Europe slipped into recession in 2009, a problem that started in the banks began to affect governments more and more, as markets worried that some countries could not afford to rescue banks in trouble. Investors began to look more closely at the finances of governments. Greece came under particular scrutiny because its economy was in and successive governments had racked up debts nearly twice the size of the economy. The threat of bank failures meant that the health of government finances became more important than ever. Governments that had grown accustomed to borrowing large amounts each year to finance their budgets and that had accumulated massive debts in the process suddenly found markets less willing to keep lending to them. Hence, what had once begun as a banking crisis became a sovereign debt crisis.

To assess the situation, the author addresses and answers several issues about the European sovereign debt crisis. The questions are:

Greece has faced many economic challenges in the past few years. The EU discovered Greece had an 8.3% budget deficit in 2004, which worsened with the financial crisis in the US in 2007. Unable to devalue their currency or circulate more money (Because it is controlled by the ECB), Greece continued to spend money carelessly, even though they were not bringing much money in. When Troika imposed austerity measures, Greece’s public sector (and eventually private) had to make job cuts that only worsened the problem. Unemployment and decreased tax revenue caused Greece to sink even deeper into a recession. Bailouts in 2010 and 2012 did not work, and the citizens began to protest the harsh cuts on

“Critically evaluate the roles of the main EU institutions (Council, Commission and Parliament) in the management of the continuing economic/financial crisis”

❖ 2011, much concern focused on Greece because of its high budget deficit and government debt, previous political instability, creative accounting fiasco, and public debt maturity. EU/IMF provided emergency funding with the

Although a commonly accepted view is that the hidden budget deficit in Greece is the beginning of the European sovereign debt crisis, the real causes of this economic crisis can be various. To reveal the whole event, a comprehensive review of the background is

The global financial crisis which began in 2007-2008 in the USA had a negative effect on the economy of the European Union, mainly in the Euro area. The falling budget revenues during the recession were coupled with an increase in public expenditure resulting from the implementation of anti-crisis programs, which led to an increase in the budget deficit and public debt. Anti-crisis packages have been used to the greatest extent in countries such as United Kingdom, Germany, France, Austria, Denmark, Sweden, Belgium, and also in Spain, while the countries that have proven to be the weakest links in the Euro area, i.e., Greece, Ireland, and Portugal, almost did not use them at all (Owsiak 2011, pp. 71-75, Mering 2011, pp.209-215). As a result, they began seeking higher yields to compensate for the higher risk of default. This led to higher interest rates for troubled governments.

This debt crisis was certainly foreseeable, but the difficulty with the debt of the states lies in the history that can be made for each country, notably Greece, Ireland, Spain, Italy and Portugal. In fact, all countries have followed different paths and today they are burdened with debts more or less important that have multiple causes. The common cause that has weighed in all states is the gradual weakening of economic growth. Beginning in the 1970s, with highs and lows, the euro area tends to grow less strongly, resulting in a limit on the resources of states to meet their needs. We also observe the widespread phenomenon in all Western countries and Japan, namely the demographic aging, which gives rise to additional burdens with which European states can not "cheat", cease paying pensions or cease Care for elderly people who are sick and dependent. These are general factors to which are added factors such as the lack of awareness of the new competition of Asian and emerging countries, which affects both the

There are many causes for the debt crisis to start. Before world war II Europe had very strict trade barriers between countries examples being currency exchange fees and trade tariffs. Then World War II happened and was so detrimental to Europe they couldn’t continue to have such strict trade barriers. The barriers were then slowly removed with the first barrier removal being steel and coal. This worked well enough that it caused twenty-seven countries to sign the Maastricht Treaty thus forming the European Union (UN). This made trading throughout all Europe easier which caused more trade to occur within Europe.

The roles of the main EU institutions (Council, Commission and Parliament) in the management of the continuing/financial crisis”

Due to the economic recession which started in 2008, several members of the European Union became historically known as PIIGS. These states include Portugal, Italy, Ireland, Greece and Spain. The reason why these countries were grouped together is the substantial instability of their economies, which was an evident problem in 2009. The reason why the five countries gained popularity is a serious concern within the EU, with regard to their national debts, especially for Greece. The latter country was involved in a controversial affair after allegedly falsifying its public financial data. In the year 2010, it was evident that the five states were in need of corrective action in order to regain their former financial stability.