In the lead-up to the global financial crises, Greece was already struggling financially. Joining the European Union (notably below the financial requirements in place by the union) further restricted the control the Greek Government had over manipulating their economy, predominantly due to the centralized euro currency. The government had also been providing false data on their financials for some time, all of which came to a head at the time of the GFC.
Increasing debt levels and decreasing GDP saw the Greek credit rating reduced numerous times. The government introduced many austerity measures to allow them to repay their debts, however, the debt levels didn’t improve, and the possibility of sovereign default was now real.
Two bailouts
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New resource sector capacities are coming online, and investment is incurring in areas outside the housing and mining sectors. This improvement in household incomes should continue to see consumer spending with improvements in wages expected to follow. The Federal Government are forecasting a budget surplus by 2020/21.
However, recent low interest rates have increased mortgage borrowing and subsequently seen a rise in house prices in many parts of the country. The potential risk here though is that many households may experience financial stress if house prices undergo large corrections.
Whilst there are downward pressures on growth in economies such as China, Japan and Korea, we are still likely to see growth at around the potential in East Asian countries with the advanced economies seeing growth above potential. The demand for steel in China is expected to be less than over the previous period. European growth is uneven throughout member countries, with minimal growth overall. The US economy is growing faster than expected, with unemployment expected to continue to drop.
Whilst there are signs of gradual improvement across the globe, this is occurring rather unevenly and is not without risk of decline. Companies should be aware of the risk for burst in the ‘housing bubble’ and the economic downturn that would follow. Australian and New Zealand exports rely heavily on the Asian market,
Looking back over the past ten years and most especially the past three years for investment returns and economic possibilities, there seems to be more growth in the past 24 months than what we have seen in over a decade. The rapidly changing international economic climate and the current government struggles with tax based polices and the continued climbing US
housing market in 2008, which I will go into more detail about later, created a domino effect which spread to almost every major Westernized economy, including Greece. Michael Lewis, author of The Big Short, and many Vanity Fair Magazine articles, including “Beware of Greeks Bearing Bonds” has extensively researched the recent world economic downturn in 2008, attributing the cause to a combination of overconfidence in the housing market and complicated financial trickery by big investment banks like Goldman Sachs, Lehman Brothers, and others. In “Beware of Greeks Bearing Bonds” Lewis writes in relation to corruption within Greek government, “Here, in 2001, entered Goldman Sachs, which engaged in a series of apparently legal but nonetheless repellent deals designed to hide the Greek government’s true level of indebtedness. For these trades Goldman Sachs…carved out a reported $300 million in fees” (Lewis, 13). Along with teaching Greek government to hide their nation’s debt, Goldman Sachs also taught them to identify sources of future income and turn those resources into cash which they could spend however and whenever they pleased, often putting much of the money into their own pockets
The Troika, made up of the International Monetary Fund, European Commissions and the European Central Bank have the most to lose in this debt crisis as they own 78% of Greek debt. With so much to lose we have seen European “bailout” agreements that mostly front the Greek government more money coupled with crippling austerity in an effort to “rebuild” the economy. Austerity discourages growth as it cuts the spending of the government who is by far the biggest spender in the economy. The effects of austerity can be devastating, but the true effects are often hidden beneath the messages we get from mainstream news sources. The stereotype of the Greek people as lazy and tax evading has desensitized the public and has made austerity seem like more of a sensible option. The media messages have made strict austerity measures seem justified and in effect have hegemozined the Greek people.
By the end of 2015, The Federal Reserve will raise interests and continue to do so throughout the following years. Simply put, interest rates have a direct impact on borrowing costs and by increasing interest rates; mortgage rates can jump as well. Long term mortgage rates are guided by numerous factors including the Fed’s short term rates, household savings rate, the budget deficit, and other indicators of the real economy. At the moment,
“The combination of the weakness in energy weighing on investment along with high levels of indebtedness keeping consumer spending modest puts the weight on the external side of the economy to much of the lifting of growth in the period ahead. The combination of a recovering U.S. economy and the more competitive currency are showing early signs of a bounce in exports, a trend that is needed to continue in the year ahead for overall economic growth to accelerate.”( Craig Wright, RBC economic
This credit was available until 2008, when the U.S. housing market crashed, and the global economy tightened up everywhere (“The European Debt Crisis Visualized”). Greece suffered terribly from this because their economy relied on borrowing and deficit spending. Without being able to borrow that money, not only their economy, but all of Europe’s economy suffered.
The U.S. economy appears to be in upward swing following three consecutive quarters of weak GDP. Underpinning third quarter growth of 3.5% was robust consumption, which posted a 3% annual change. Expectations for the fourth quarter are for 1.9% growth, placing the yearly change at 1.6%. Although 2016 will match the weakest yearly growth rate since the financial crisis ended, the focus is clearly on the strength in the past two quarters and outlook over the next three years.
Keep an eye on capital spending going forward and until we see it rise and demand for durable goods pick up we can expect to continue with this moderate to slow economy for a while longer.
As far as Greece’s role in creating this crisis in the first place, it can be said that Greece is at fault for a variety of reasons. The media has been focusing on the corrupt political system and infrastructure, the lack of competition in the private sector, the wastefulness and inefficiency of the public sector and a flawed tax system as causation for this mess. When the public sector was expanded in the 1980’s, Andreas Papandreou was given various agricultural subsidies and grants to do with what he pleased. This enabled the funding of certain post-World War II groups to heal political wounds and fund unions and other special interest groups to aid his political capital and strength. The policies enacted in this decade allowed for the increase in power and funding of the middle class by creating a vast amount of inefficient public sector government jobs for citizens. This resulted in an increase in the levels of inefficiency, bureaucracy, corruption and wasteful spending coupled with the increase in wages, pensions and benefits. This proceeded to drain through government money and resources, and did not breed a culture of highly motivated, efficient and effective government employees. A high amount of debts accumulated as the nation continued to proceed in this way, using state money to subsidize failing businesses
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.
Despite the recent softness in high-frequency data, the economy is close to full employment and growth is likely to average 2.4% in 2015. It should accelerate slightly in 2016, as the buoyant labour market will boost private consumption, offsetting some of the weakness in the industrial and trade sectors. Federal Reserve (Fed) officials have highlighted the external headwinds posed to the US economy by slowing growth in emerging countries and a continued debt overhang from the financial crisis.
The financial headlines of 2012 were prevalent with the tribulations of the Greek economy. Its problems, in the eyes of many of the other nations of the euro zone, were not only negatively impacting the prosperity of the Greeks, but also the viability of the European Union. The country as a whole requires a major restructuring. Not only are drastic changes needed in financial and economic policies, but the Greeks need to understand their attitude of government entitlements cannot be sustained. The mismanagement of the Greek economy is also evident in its place in the global market community. It has not found the path that a county needs to follow to become an active member of the vibrant,
Greece government’s debt has been around since 2010. The countries surrounding Greece are now worried that it may affect them. The economy in Greece started getting worse after United Stated had its crisis in 2007. Since Greece entered the Eurozone changes in the economy, financial stability, and employment had caused Greece to go into more debt, but it could have been avoided if Greece would have not entered the Eurozone.
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
As a result of the global recession, Australia’s GDP was forecasted to contract by 0.5% in 2009-10 in comparison to other advanced economies which were expected to contract by 3.75% in the same year. However minor the reductions in GDP, it was evident that Australia was not exempt from the global recession although is better placed and is expected to perform better than almost all other OECD economies. The global recession has also triggered a fall in household wealth and a disruption in consumer confidence with consumption forecasted to contract by 0.25% in 2009-10.