Greece's Economic Situation With The United States

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.

The article “How Germany Prevailed in the Greek Bailout” discusses Germany’s successes financially in comparison to most other (19 countries) in Europe. Although Germany has such success others see the country as a bully almost due to their militaristic background even though they have come to the aid of Greece and helped. Many other European countries are hesitant about Greece receiving aid considering the countries past failures financially. This is not the first time the country has been in debt and undoubtedly will not be the last. Since the economy fell in 2008 Greece’s unemployment rate is about 22% which is double the U.S. Due to an imbalance in European countries where some are creditors and others debtors it is difficult to fix this

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.

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.

(Pavlakis, 2013) 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. (Kentikelenis et al., 2011) 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 galvanized the Greek people.

This paper will provide a brief history of Greece and reviews the modern day problems that may force Greece out of the Eurozone. Indeed, history is being made on a daily basis as the prospect of a Greek exit would steer both the nation and the Eurozone into uncharted territory. This is a cautionary

The Global Financial crisis started with the burst of US housing bubble, which peaked in 2006. The main reason for this was the subprime lending, deregulation of the financial sector, off book financing and underwriting practices. Loans were issued to the customers with poor credit rating thinking that the price of houses will rise in the future and due to overvaluation. This resulted in decline in credit availability, damaged investor faith, and reduced international trade and an impact on the stock market. As European Union has high trade ties and financial ties with US, the European Union suffered the effects of this financial crisis as well resulting in the Global Financial crisis of 2008 or the Great depression of 2008.

Due to debt levels reached a high point where Greece has not any longer able to repay its loans, and were forced to ask for help from its European partners and the IMF in the form of massive loans. Therefore, the higher debt level and the attached conditions have compounded Greece 's woes (Arghyrou & Tsoukalas, 2011)

Greece has many historical aspects such as the acropolis where many polytheistic worshipers came to worship the Gods, the first Olympics, as well as the first democracy, however one question that the whole world is asking is “will Greece’s debt soon be history”? The prime minister, Alexis Tripras, is unwilling to pay of the billions of euros of its debt. Germany and France has loaned billions of euros and are now trying to create a plan to solve this problem. The International Monetary Fund, European Central Bank and other organizations have declined all of Greece’s request for more loans. Although the majority countries in the world have debt, Greece has been loaned billions of euros from many european countries, the EU, and other international organizations; this is a problem because this country is doing all in its power to accept more grants, unwilling to give the overdue credits back.

One cannot understand the Greek Financial Crises and the general European Financial Crises without understanding the history of the European Union, the creation of the euro, and the Eurozone. The countries involved in the European Financial Crises were Spain, Portugal, Iceland, Ireland and Greece. The Maastricht Treaty created the European Union in 1993. The treaty gave citizenship to all people living in the 28 member countries. This treaty led to the creation of the Euro. In order to join the Eurozone, each member country must maintain sound fiscal policies. Essentially, each country must limit national debt to 60% of gross domestic product and limit annual budget deficits to a maximum of 3% of GDP. The main reason for the greater European Financial Crises and Greece 's crises was the country 's violated the treaty restrictions. Spain, Portugal, Iceland, Ireland and Greece were unable to maintain spending within these limits. Additionally, the European Union has a monetary union but does not have a fiscal union. Each member country maintains its own independent tax and spending policies. The absence of a common fiscal tax for every member country in the EU is the reason for the current crises.

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 economic crisis in Greece began through government policies that promoted overspending, while relying extensively on external loans to finance it. This issue was increased when Greece entered the European Monetary Union, therefore making the cost of borrowing very favorable. For the past decade, Greece could borrow money with interest rates close to those afforded by much more advanced economies. As a result, the national debt grew exponentially until Greece could not borrow any more money. The Greek government asked the European Union for assistance in 2009, and soon afterward the European partners, along with the IMF, agreed to a series of loans and debt reductions for more sustainable debt levels for Greece. As a condition for this aid, they requested the

Two bailouts later, with the third quickly approaching, Greece has shown the European Union that its austerity measures are not a viable or sustainable option for debt relief. With the spiraling decline of investor confidence in an economy severely trapped by debt, Greece has been under threat of being dismissed from the European Union. As of July 14, 2015, Greece’s third European Union bailout was left just out of arms reach until the nation follows through with, what has been termed ‘Draconian,’ reforms aimed at minimalizing Greece’s debt. Although Greece makes up just 2% of the European Union population, its weighted economy and potential impact on the global economy is on everyone’s mind.