On July 1, 2015, Greece stood on the brink of bankruptcy. Greece’s debt to the EU, the ECB (European Central Bank), and the IMF was ?323 billion. Now, Greece’s economic situation is serious and the whole world is paying attention to Greece. The Gazette will introduce the causes of its economic situation and the magnitude of the problem.
First, the government’s operation was wrong. The government’s welfare policies were beyond Greece’s means. For example, the government granted a pension to Greek people before they were 45 years old. Therefore, the government needed to give them a lot of money. In addition, the number of people in the employment of the government is a problem. Two million people are civil servants among a population of about 11 million. The government has to pay a high pension to them. Therefore, the national finances are bad. Greece made income from tourism and the shipping industry, but because of the 2008 global economic crisis, Greece’s economy was in decline. Therefore, Greece borrowed money from the Eurozone to maintain a welfare policy and give pension and salary to public officials.
Furthermore, high-ranking government officials embezzled state finances. Currently, Greek slush funds in Switzerland are estimated at between ?2 billion and ?20 billion. Second, the tax evasion problem is serious. Most Greek people did not pay tax properly. Less tax revenue due to tax evasion caused bad state finances. Tax evasion in Greece is about 24% of GDP, about ?28 billion per year.
The third problem is from the disadvantage of using the euro. Since Greece joined the Eurozone, they have used the euro. Eurozone states like Greece cannot adjust the exchange rate because the euro is a single currency. Therefore, in the case of Greece, they can’t improve the deficit by adjusting the value of money independently. As a result, it decreases the competitiveness of their exports. Since joining the Eurozone, rich countries like Germany have become richer and poor countries like Greece have become poorer.
Because of these, Greece is suffering a serious economic crisis. When the situation was serious, from June to July, Greeks could withdraw only approximately ?60 per day from ATMs and the market’s cash was depleted. Basic necessities and medicines became rare because people panic bought daily necessities. Moreover, Greeks protested against the government and tax increases, pension cuts, and privatization plans for utility companies.
Greece’s economic crisis had been expected a long time ago. At the end of 2009, the national debt was 130% of GDP. On April 13, 2010, Greece requested a bailout from the Eurozone. After that, they received additional bailouts. Nevertheless, the situation did not get better. On June 28, 2015, Greek Prime Minister Alexis Tsipras announced a closure of the banks and restrictions on withdrawals. In addition, the Athens Stock Exchange was closed. Eventually, on July 1, Greece was close to a national bankruptcy. Then, on July 5, a referendum was held on its creditors’ proposals. The proposals were Greece needs to raise the legal age of retirement by 2022 and reduce public officials’ pension and salary. The result was 61.3% dissenting against 38.7% for, from a 62.5% turnout. On July 13, Greece and its creditors started negotiations and after 17 hours, a bailout was approved. Then on July 20, Greek banks reopened. However, there are many restrictions on using ATMs and prices are skyrocketing.
Greece’s bankruptcy is the first of a developed country in the IMF’s 71 year history. It has a big influence on the entire EU economy. Not only Greece, but also Portugal, Spain, and Italy are suffering financial crises. Due to Greece’s bankruptcy, there is a fear in the markets that other countries will also suffer like Greece and the financial system will collapse. Economists are concerned that if Greece dramatically cuts spending, it can make the slump deeper. They said that relief and financial assistance are needed.
Due to many reasons, Greece is having a hard time. It will take time to get out of difficulties. The biggest problem is Greece’s populist policies and corruption. Appropriate government policies and help for the Greeks are the best methods to revive Greece’s economy.
