SSB Awareness series: Greek Crisis – The Flashback

Let’s start on with a throwback about GREECE! A quick questionnaire – What comes to your mind first and foremost when you hear / read about Greece? Majority would be saying its history its mythology, gods like Zeus, Poseidon etc. the youngsters will link Greece to games like God Of War, Hercules, Wrath Of Gods and so on. 

I must say if this is your answer then you are perfectly correct and on the right track. Let me add one more point Greece is the hub of tourism industry because of its mythological locations and temples and even was the symbol of power. So coming on to the part which even you might be wondering what actually went wrong because of which such a drastic crisis struck in this huge country?

Here is what happened – Before 1990’s there was no formation of Eurozone and each country had its own currency and an independent market so if there is a single party involved always it can’t be a man army hence the euro was introduced in Europe in Jan 1999.

Now another question will strike your mind WHY EURO?

The euro was created because a single currency offers many advantages and benefits over the previous situation where each Member State had its own currency.

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Not only are fluctuation risks and exchange costs eliminated and the single market strengthened, but the euro also means closer co-operation among Member States for a stable currency and economy to the benefit of us all. This shall but naturally increase the GDP of the countries and many more long term benefits.

But as we know there is always a risk in driving a car compared to that the market of countries are ocean so you can imagine the risks associated with it whether it’s a part of a union or an independent nation.

Few points of Greece being a part of Eurozone:-

·         It had the fastest growing economy from 2000-2007.

·         Greece is, as a percentage of GDP, the second-biggest defense spender in NATO, the highest being the United States, according to NATO statistics.

The reasons which caused the crisis:-

·         GDP growth rates: After 2008, GDP growth rates were lower than the Greek national statistical agency had predicted to be.

·         Reckless expenditure by government without revising the taxations i.e. from 2004-09 the expenditures increased by 87% to only 31% hike in taxes.

·         Huge debt-fallen government and lack of measures to improve the taxes.

·         Failure in providing exact details and even hiding certain stats from euro zone for the analyzing there economy.

·         Giving pension to all the citizens after a particular age which was 97% of their last salary.

Debt Stats:-

The figure for Greek government debt at the end of 2009 was also increased from its first November estimate at €269.3 billion (113% of GDP) to a revised €299.7 billion (130% of GDP).

External Debt in Greece increased to 419411.30 EUR Million in the first quarter of 2015 from 417620.90 EUR Million in the fourth quarter of 2014. External Debt in Greece averaged 325974.95 EUR Million from 2003 until 2015, reaching an all-time high of 437025 EUR Million in the fourth quarter of 2012 and a record low of 142217 EUR Million in the first quarter of 2003. External Debt in Greece is reported by the Bank of Greece

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This crisis had a great aftermath which could have had resulted in ‘GREXIT’ i.e. which means exit of Greece from Eurozone which would have caused economic break of Euro market in the world and many social and economic effects like –

·         GDP per capita fell from a peak of €22,500 in 2007 to €17,000 in 2014, a 24% decline.

·         Revenues for 2014 were €86 billion (about 48% GDP), while expenditures were €89.5 billion (about 50% GDP).

·         The unemployment rate has risen considerably, from below 10% (2005–2009) to around 25% (2014–2015).

·         An estimated 44% of Greeks lived below the poverty line in 2014.

·         Greece defaulted on a $1.7 billion IMF payment on June 29, 2015. Greece had requested a two-year bailout from its lenders for roughly $30 billion, its third in six years, but did not receive it.

Solutions:-

Greece requested an extension and was even granted but it again failed to repay the debt but on seeing it’s situation big countries like Germany and France stepped forward to grant a loan to Greece provided Greece agrees to certain terms and conditions like:-

·         Revising its taxation pattern.

·         Increment of Taxes.

·         Reduction of salaries.

·         Revising pension law and so on.

This crisis surely delivers the message to the whole world about do’s and don’ts in the economy even it teaches the necessity of controlling the government’s reckless expenditure during lack of funds and eventually justifies that loans can often land you in a trouble say it be a private loan or loan take from IMF by a particular nation.

Concluding with a quick fact Greece had only 350million € left over in its bank during this crisis the scenario is beyond imagination.

What if Greece had its own currency and this happened?

Well since it was an independent market so government could have reduced the value of its currency as were hiked the prices. Basically the scenario wouldn’t have had been so serious.

There is a discussion going in Greece about a new currency ‘drachma’ but they can’t implement until they clear off their debts.

Hence, Being a part of Eurozone is a beneficiary if the nations implement and follow laws else you know what can happen.
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About the Author: Vinesh Kemchandani is an Ex- Dipsite who has been a state horse rider of Maharashtra since last 3 years and is doing horse riding for 11 years and wants to become an international level rider. He has achievements in other sports too in his kitty. He is excellent in studies and has scored good ranks in many Olympiads at international level. He desires to become an officer and has cleared his NDA in 2015.