Successful Governments Demonstrate An Aptitude For Effective Financial And Fiscal Management

Economists describe the global crisis of 2008 as the worst financial crisis since the Great Depression. National banks assisted in bailouts to prevent large financial institutions from collapsing, and that was only prevented by the help of national banks, who assisted in bailouts. Although national banks stepped in, stock markets dropped all over the world. The crisis is the cause for the failure of many businesses and a loss of trillions of U.S. dollars in consumer wealth, along with decreased economic activity and the nation-wide debt crisis over in Europe. There were many countries affected by the global financial crisis, one in particular being Greece. Many people think the problems in Greece started with the financial crisis, but the country’s debt problems started long before the crisis, tracing back to the 1970s. The Greek economy was not prepared to deal with the economic downturn, because of its large gap between revenue and expenditures.

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.

In the early-mid 2000s, Greece 's economy was strong and the government took advantage by running a large deficit. As the world economy cooled in the late 2000s, Greece was hit especially hard because its main industries—shipping and tourism—were especially sensitive to changes in the business cycle. As a result, the country 's debt began to pile up rapidly. In early 2010, as concerns about Greece 's national debt grew, policy makers suggested that emergency bailouts might be necessary.

Figure 2 displays the substantial financial struggle Greece faced compared to their fellow European counterparts between 1994 and 2014. In more recent years, the Greek government debt was 177% of its GDP. (Kirk, 2017)

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

Since the 1990s, the Greek economy has been suffering from a deficit in its accounts due to years of funds mismanagement and poor fiscal policies. However, the task of dealing with the issue was passed on from one executive to the next, hence exacerbating the problem.

The government of Greece set a series of plans for this problem and finally choose one of cutting the deficit. But the Bond markets doubt about the plan, therefore, Fitch and S&P, cut Greece’ grade from A- to BBB+.

The purpose for this paper is understand why & how the Greece ended up with the worst debt crisis of our lifetime. Other objective of the paper is to analyze its historical reasons, and the challenges of the European Union, Europe and the world economy to the Greek crisis.

The European debt crisis began in 2009 when rating agency’s downgraded Greek government and bank debt because Greece’s government debt reached 113% of GDP. Furthermore, in 2010 Greece’s budget deficit for 2009 was revised from 3.7% to 12.7% (13). Since then Greece has received multiple bail-outs and the crisis has spread throughout the Eurozone and many countries like Portugal, Spain, Ireland and Italy have been severely affected. The Eurozone crisis is a combination of sovereign debt, productivity, private debt, asset bubble and banking crisis. Contrary to BOJ in 1990’s, the ECB reacted to the crisis by quickly lowering the interest rate to 1% in May 2009 (14). Furthermore, the ECB started intervening with the securities market directly in 2010 with the ’Securities Markets Programme’, purchase programme to buy bank-issued covered bonds (2011)

In 2009 Greece hit a period of economic crisis. The Greek government had made debt obligations that they could not fulfill. As a result, Greece entered a period of deep economic down turn. Given the nature of how the European Union (EU) is constructed with an internal market economy, Greece’s issues spread to Ireland and Portugal. Eventually, it led to the European debt crisis where Greece, Portugal, Ireland, Spain, and Cyprus could not pay back government debts. In the same fashion that Greece affected Ireland and Portugal, the crisis would affect all of Europe, and so the European Central Bank and European Commission of the EU funded bailouts totaling $264 billion to try and stop this from happening. As of now, Greece is the only

Critically analyse how the government debt problems initially faced by a few relatively small economies could trigger such a wide impact in financial markets

Greece’s case was somewhat peculiar. While the crisis in Europe progressed from banking system crises to sovereign debt crisis, in Greece it happened the other way. In 2010 the Greek government revealed that the deficit of Greece in 2009 had made the public debt no longer viable. The country tried to regain the trustworthiness of the global markets by reducing its expenditures. This didn’t work and the government of George Papandreou, in April 23, 2010, requested the help of the IMF. (Προσφυγή της Ελλάδας στο μηχανισμό στήριξης ανακοίνωσε ο πρωθυπουργός, 2010). Greece was the first country in the euro area to request financial support from the IMF.

In late 2000 due to financial crisis the Greece largest industries, tourism and shipping, were badly affected. The Greece had joined the group knowing that it would be easier for it to get the debt with a globally strong currency Euro. The Greeks continued lavish spending (events like Athens Olympic which are reported to cost Greece several times more than the estimated cost, public care) combined with long following trade deficits and large tax evading population lead the Greece budget deficit and public debt to rise to insurmountable amount. And now, the deficit percentage and the debt to GDP ratio for the Greece are highest among

The strong performance of public finances in Sweden is an interesting case.Previous studies have compared the current crisis with the banking crisis in Sweden in the early 1990s to study the reason behind Sweden’s strong public finances (Flodén, 2013). When comparing the macroeconomic behavior during the current crisis and during the banking crisis in the early 1990s, it showed a larger drop in GDP and in exports while unemployment increased very less during the current crisis. The absence of large increase in unemployment rate explained the strong Swedish public finances. The relatively steady employment rate is due to the aggregated demand during the current crisis remained strong, and the lower employment in the manufacturing sector was offset by the increase in private sector. Another more important factor contributed to the high employment rate during the current crisis is the Swedish fiscal policy framework, which was established after the banking crisis in 1990s. The following analysis will explain how the fiscal framework can affect the Swedish public finances.