Beautiful Mediterranean beach of Greece (Photo credits SoarLegs) Greece has been in deep water for quite some time, but what is really happening in Greece? Let us take a look in history to determine the cause of Greece's current financial state. First let us talk about what happened when Greece started using the Euro. The Euro is a shared currency across all countries in the Eurozone: Spain, Germany, France, Italy, Etc. The introduction of the Euro helped the countries using it, reducing trade costs among Eurozone countries and increasing total trade volume. This no doubt helped Greece's economy grow, for a short while. So what happened? Well the fact was that Greece's economy was already weaker than the rest of the Eurozone countries to begin with. With an unemployment rate of about 8.25% in 2001 compared to Germany's unemployment rate of about 7.8% in 2001, Greece was already behind the rest of the Eurozone. By the end of 2009, Greece's unemployment rate was about 10.7% whereas Germany was only at about 7.5%.
Greece had their own fiscal policy, this made Greece on a tight budget, only able to spend how much the government collects in taxes. Anything more, Greece had to borrow. This is called deficit spending. So being in the Eurozone where it was easier to borrow money, having low interest rates unlike before the formation of the EU. Greece was now able to make giant loans and immediately made loans and accumulated large amounts of debt. In 2004, Greece hosted the Olympics, this accounted for the large loans Greece made, along with Greece's already failing economy and was about 98.6% of their GDP in debt by 2004. Greece had been spending large amounts of money on deficit ever since the EU was formed and borrowing money was a breeze. In fact, it wasn't only Greece, the whole EU did it on credit based off Germany. This caused the economies of the whole EU to be largely intertwined as almost every country was borrowing and lending money to one another. However, in 2008, a collapse happened in the US housing market, a global credit crisis occured, causing borrowing to become impossible. Now in the EU, Germany was out of credit and the rest of the EU looked at one another, unable to pay up to one another and at the end of the borrowing line, was Greece. Needless to say, everyone was staring at Greece to pay up. From here, Greece itself was unable to function. It was out of money to borrow to pay for the new jobs Greece had made in its economy. Greece couldn't pay for anything! Greece was up against the wall with nothing to give at all. This was the start of its recession. Jobs couldn't be sustained anymore and unemployment rates skyrocketed. Now the issue was further exaggerated here when it was revealed in 2009, when Greece had a new government, that Greece was reporting less than the actual deficits for years and had about 113% of their GDP worth of debt in this time. Usually when a country is so far deep in debt, it would just print more money, making their currency cheaper, giving investors opportunities and making it a more attractive tourist destination, allowing economic growth. However due to using the Euro, Greece's monetary policy, how much money is Greece able to print is controlled by the ECB(European Central Bank). Whereas Greece's fiscal policy, how much money Greece can spend, is controlled by the Greek government. You would think that Greece having beautiful Mediterranean beaches and many rich historical landmarks, Greece was a tourist hot-spot and would have earned at least abit more to cover their debts. However with the failing economy, Greece did not have the money to uphold amenities such as hotels and restaurants, not to mention being unable to pay for the jobs created by the tourism industry. But most of all, high inflation kept tourist far way from stepping into Greek borders hence making the tourism industry a complete dead-haul. With everyone asking Germany for help, it decided to help the rest of the EU, but only if strict austerity measures were put up. This was the beginning of poverty in the EU. Greece, at its wits end, reluctantly agreed and on 1 May 2010, Greece announced its austerity measures, cutting government standing, increasing taxes. This caused a complete ceasing of any economic or infrastructural development. Now this wouldn't be all so bad as Greece would have gotten itself out of debt right? Well not really. Tax evasion, especially among the rich, was very common in Greece. This meant even with austerity measures, Greece wasn't collecting back enough money. People of Greece weren't happy with the harsh austerity measures, riots broke out, casuing even more money having to have to be spent to clean up after the mess. Workers went on strikes, shrinking their already close to nonexistent economy. The EU decided to agree to a three-year €110 billion loan, paying 5.5% interest. Take note a loan not a gift. This made Greece alot more in debt then it already was. Keep in mind that Greece has to pay all of this back in due time. This basically bought time for Greece for a little while. Without this money, Greece would default. In 2011, It became apparent that the first bailout was not going to be enough, at all. A second bailout was discussed and on the 21 July 2011, the EU decided to extend the loan repayment deadline and decrease interest rates to 3.5% as well as a bailout of €109 billion. It doesn't take an economist to anticipate that this second bailout was still not going to be enough. On 27 October 2011, it was further discussed and decided for a 50% write-off of part of Greece's debt. So with all these debts Greece has put itself into, what are the impacts on its society? It has become so bad that Greece citizens cannot even withdraw the money they have in the banks as the banks are bankrupt! Left angry and penniless, their families go hungry over days or even weeks. Long queues at banks is now a common sight to see, all trying to withdraw money. Food stall owners get close to nothing but staples such as rice and bread bought, further collapsing the Greece economy. In such a broken down economy, education is the last thing on everyone's mind. In fact, educational facilities is where budget cuts first happen. With the children of Greece hungry and uneducated, Greece is in a vicious cycle of poverty. All of this is akin to paying your credit card bill late, but perhaps for years or even decades, you'll never be able to pay it out. If you're like most people, you'd think, since signing on to the EU's monetary policy and using the Euro was the whole issue, why not leave the EU? This is known as the Grexit. But what would happen if the Greece left the EU? Well to simply put it, Greece would be on its own. Sure, Greece can print all the money it needs but its so far into debt, printing money and weakening its currency to pay its debts is only going to make Greece even more likely to be in debt in the future. And a larger one on top of that. The only conclusion anyone could draw is that Greece is up against the wall and cannot do anything about it. On top of that, once Greece falls, since it shares a common currency, the rest of the EU would have a much more unstable economy. This is where the domino's effect comes in. First it'll be Greece, then it might be Portugal, then Spain and slowly one by one until Germany falls under everyone's debt and ends up with a continent of poverty and debt. References Euro-Wikipedia Greek government debt crisis-Wikipedia Greece's debt crisis Statistics
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