Between the last quarter of 2007 and early 2009, the world went through a serious economic crisis that left several economies vulnerable. Greece was no exception. In 2010, following the aftermath of the 2009/2009 global crisis, Eurozone fell to the effects of the remedial measures tabled against the global financial crisis. With the consolidation of the European countries into an economic block, members with relatively less effective fiscal and monetary policies faced the brink of economic failure (Arghyrou and Tsoukalas 38). Greece, suffering from inconsistent leadership guided by the desire to impress the populations and supporters, presented an ample zone for fatal economic crisis. This paper seeks to explore the root causes of the Greek economic crisis and elucidate the effects of the financial crisis in this relatively quiet European nation with rich historical culture.
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Causes of the Greek financial crisis
In 2008, after a long period of economic growth and prosperity, financial crisis erupted in developed economies. Given the relatively stronger and robust economic and financial policies in the developed nations, the effects of the 2008/2009 economic crisis spilt over into weaker economies with the developed economic zone. Several countries fell into recession with Greece leading the affected countries in high debt levels.
Expansion of the public sector after entry into the European Union
Drivers of the Greek financial crisis draw inspiration from a buildup of blotted public service sector with high recurrent expenditure. When Andreas Papandreaou first took over the leadership of Greece in 1981, he introduced several public service jobs and employment opportunities with duplicated functions leading to increased expenses in the working sector (“The causes: A very short history of the crisis” n. pag). Similarly, his tenure began simultaneously with Greece’s entry into the European Union. During this period, he took advantage of the several grants and agricultural subsidies introduced by the European Union the relatively poorer members. Even though the grants and blotted public services rewarded the disintegrated social groups marginalized by the previous regimes, they presented a system of over reliance on grant leading to lower productivity. The blotted public service continuously became unmanageable with the economic crisis becoming the final effect (Arghyrou and Tsoukalas 25).
During the period between 1981 and 1993, Greece leadership drew inspiration from populist policies that seek to answer to the public demands of the electorate. Creation of sustainable policies to check employment structures, financial problems, and poverty reduction received little focus as politicians focused on manipulating the electorate through tokens and handouts. In his second term, Papandreaou consolidated the creation of bureaucratic job opportunities. Comparing this trend to the style of leadership Juan Domingo of Argentina exhibited, Arghyrou and Tsoukalas (63) argued that his unscrupulous employment of opportunities increased the wage group to an unsustainable level leading to the increase in debt levels.
Corruption and cronyism
Greece with a rich culture of historical democracy and philosophy plunged into corruption, nepotism, and favoritism after the dictatorial leadership after World War II. During this time, leaders misused public resource and rewarded friends and cronies as the country plunged into gross economic failure. With the attitude of developing a corrective measure for these atrocities, Papanndreaou rode into leadership. However, while at the help of the country’s leadership, he shifted favoritism from friends and cronies to special interest groups that supported his campaigns. The Greek public service sector grew into gross insufficiency, corruption, and uttermost overstaffing. This increased the national wages and raised pensions. These factors coupled with strengthened trade unions and interest groups enjoying subsidies from the government worsened the situation. With the government continuously funding and subsidizing unprofitable business franchises under the groups, supporting their policies, economic crisis looked inevitable (Irwin n. pag).
Notably, the aftermath of the 1980 and 1990s financial policies downed on the Greek’s economy in the first decade of the 21st century. High monetary imbalances due to an expensive yet unproductive workforce between 2003 and 2006 created an environment for financial crisis. With the nation’s expenses increasing at annual rate of twenty-nine percent against nominal growth of thirteen percent an economic crisis remained in the offing. With tax revenue increasing at an annual rate of six percent, Greek balance sheet presented an inevitable state of insolvency. Even though increasing taxation provided a basis for improving the revenues from a blotted workforce, a taxation regime composed of greedy and corrupt cronies of political leaders presented an obstacle in taxation systems. Tax evasion and corruption further compromised the ability of the Greek economy to source for internal revenues to offset the negative balance sheet (Irwin n. pag).
Increasing debt levels
In the early 2000’s, Greek enjoyed a relatively stable political system with great opportunities for righting the wrongs of the political class. However, lack of political will compromised the situation. In 2010, at the beginning of the Greek financial crisis, it fiscal remained evident that the fiscal imbalances reached inevitable levels. Political focus on the rewards to cronies and friends shifted to the demand for long-term solution to the rising debt level. Government needed a long-term remedy for the control of the national wage level as well as an economic solution to the elusive taxation system (Krugman n.pag).
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This is a non-productive exploitation of resources in a system that acquires existing wealth such as money, privileges, and status as opposed instigation and creation of new wealth through sustainable productive activities relevant within existing market structures. This culture increases the rate of expenses in an efficient system with little regards to competitive and production rates of return on investment within a market system. Greek political leaders and their economic advisors mastered this culture with focus on job creation and consolidation of political support from the special interest groups. As Angelopoulos, Philippopoulos, and Vassilatos (290) explore in their study on the economy problems of the Greek nation, increases a country’s social economic problems. While calculating the social cost for the Eurozone, in relation to the fiscal and economic policies among individual member states, Angelopoulos, Philippopoulos, and Vassilatos (293) argue that economic crisis remained inevitable. Eurozone accrued eighteen percent losses of the tax revenues while individual nations like Greece suffered higher losses. With the Netherlands and Ireland leading on the best non-rent seekers, Greece recorded sixteen percent of tax losses on revenue. Corruption, nepotism, and sectional groups further worsened the situation in the rent seeking culture leading to increase in debt rates.
End of ideological divisions
For the past three decades, Greece leadership has remained under the hands of either the conservatives or the socialists. Even though these two groups hold noble development ideas on different manifestos, the regimes in the past thirty years focused more on rewards to political support rather than developmental ideas and agendas. Changing leadership crated a culture of corruption, nepotism, and favoritism (“The euro crisis: What to do about Greece” n. pag). Instead of developing concrete measures against the previous faults created by preceding regimes, the incumbent leadership ruled with an iron fist focusing on consolidating political power. Every leader voided development of risky policies that could check the tainted financial status of the Greek government. The shift from ideological rule to consolidation of power led to excessive misuse of resource forcing Greece into a state of insolvency (Krugman n. pag).
Inasmuch as the current Greek government suffers the wrath of the previous regimes, it harbors the constitutional obligation to develop measures to control the debt level and ensure adequate productive investment. After taking of the reigns in October 2009, the current regime keeps developing fiscal austerity measures within the internal finance systems to check on the government spending. Similarly, control and regulatory supervision of the tax systems and other revenue control machinery remains the driving force of the current regime. In order to check on corruption and tax evasion ills, the current regimes relies on strong and effective monetary and fiscal policies (“The euro crisis: What to do about Greece” n. pag). A consolidation plan to reduce spending and increase revenue collection is in place. Civil service acts as the back one of crack down on excessive government spending. The government cut down wages, pensions, and bonuses accrued to the civil servants since 2010. The measures coupled with monetary policy assistance from the European Union and the international finance institutions looks to help regulate Greek debt levels thus improving the economy (Arghyrou and Tsoukalas 91). Even though the results might take long to exhibit, the control measures in place hold high chances of success in the end.
Developing a strategy for successful economic development relies on strong and effective governance policies. Greek financial crisis took place following a series of failure in policy formulation and effective governance. Corruption, nepotism, and favoritism all work against political and economic prosperity. Despite the ill economic situation in Greek during the past few years, the country seems to develop a better recovery and reinvestment structure that will spur the historical nation into an economic powerhouse.
Angelopoulos, Konstantinos, Apostolis Philippopoulos, and Vanghelis Vassilatos. “The social cost of rent seeking in Europe.” European Journal of Political Economy 25.3 (2009): 280-299. Print.
Arghyrou, Michael, and John Tsoukalas. The Greek Debt Crisis: Likely Causes, Mechanics and Outcomes. Munich: Center for Economic Studies, 2010. Print.
“The causes: A very short history of the crisis.” The Economist [London] 2011: n. pag. Web.
“The euro crisis: What to do about Greece.” The Economist [London] 2012: n. pag. Web.
Irwin, Neil. “Greece’s debt crisis could spread across Europe.” The Washington Post [Washington] 2010: n. pag. Web.
Krugman, Paul. “Greece as Victim.” The New York Times [New York] 2012: n. pag. Web.