Essay on the Financial Crisis in Greece

Everyone knows that Greece is famous for its rich history, mythology, and architecture. But they cannot rely solely on tourism to keep their economy afloat. There were some key mistakes and mismanagements from their government threw them into a deep, deep hole.

When Greece joined into Europe, they were doing well financially. In 1981, the party that rose to power was the Panhellenic Socialist Movement, spearheaded by Andreas Papandreou. They stayed in power due to what some would call bribing the voters, with a very liberal welfare policy. They also created policies that sound great on paper, but do not actually work in real life. Many programs such as the annual increase in salary for workers in the public sector, or their retirement programs. These all sound outstanding, and will attract voters to keep the party in power, but it does very little to help the economy. The increase in salaries did not take into account that a certain level of production would be needed to obtain the increase, but instead everyone received it annually. Also, the retirement programs were very generous. Once reaching thirty-five years of service in the public sector, a man was allowed to retire. For women, however, in certain situations, were able to retire as young as 50 years old. As absurd as it may sound, it is known that in December Greece also paid employees additional monthly payments. They said it was to help with holiday expenses and then in March they would receive an additional half-yearly allowance to help pay for holiday expenses. All of these factors, including others, was leading Greece into a major financial crisis. As stated in an article by Elvis Picado, “As a result of low productivity, eroding competitiveness, and rampant tax evasion, the government had to resort to a massive debt binge to keep the party going” (Picado 2018). This quote essentially states that the working force in Greece had no desire to exert much effort into their work because they would receive lavish benefits every year even without a certain level of performance. So yes, this made the people happy, and it kept the PASOK in power, but it did nothing to help stimulate the economy.

In 2001, when Greece was admitted into the eurozone, it helped Greece borrow money from other countries to help their own shortcomings economically. The euro was considered to be better because it was stable, it had been proven to work for other nations, and it did solve Greece’s problem for a short time. Since they were now using an accepted, stable, and proven currency, many banks and investors saw this as Greece being a stable place to invest their money. The investments made helped to sustain and balance Greece’s economy for most of the early 2000s. Things were looking up for Greece. The graph shows all of the interest rates across Germany, Italy, France, Greece, Ireland, Spain, and the ECB. The interest rate that was being seen were nearly identical to that of other countries such as Germany. This let Greece have some leeway when they borrowed because firms were more trusting of them. This borrowing led to a sharp increase in spending, which seems like it would be the cause of the economic downfall, but it was not. As stated above, Greece is small. They are made up of multiple islands, and do not have the land for booming corporations to compete with countries such as China, or the United States of America. Nor do they have as great of a population as other countries. They spent a lot of money, but their biggest problem came from a lack of income into the country. It does not matter how much is spent, if no money is being brought in to the country, then it will automatically lead to a very hefty debt. The country also faced another problem: tax evasion. Most self-employed people would fudge their income, while raising their debt payments. With so many businesses considering this to be accepted, there was little that the government did to try to put a stop to it.

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With all of the struggles facing Greece, they could do something to try and counteract the ever-growing debt: devalue their currency. The only problem that they face with this is that Greece lost its individuality when they became part of the eurozone. If they were to devalue their currency, every other nation who uses the euro would also see their currency devalued. This move would not fly for many obvious reasons, but the biggest would be screwing other countries who were not struggling. They also could not afford to leave the eurozone because that in turn would bring on its own set of challenges. Greece would lose financial help from other nations, it would be forced to bear the weight of all of its struggles alone, which was virtually impossible.

Another cause for this sharp fall was its relationship with Germany. German goods were much cheaper than those made in Greece, so they were imported into Greece regularly. With more goods being imported from Germany, this meant that Greece itself was not producing as much as it used to. This led to an even bigger decrease in productivity which lowered the amount of revenue being made. However, the amount being spent stayed the same. The demand for goods was still as high as it was before, but now Greece saw more and more goods being shipped in. Although, as long as the country was stable and everyone was happy, nothing was done to solve this problem, because what could go wrong?

In 2007, Greece’s problems came to light. The global financial crisis weakened Greece’s economy even further, and caused them to look for banks to help bail them out. The International Monetary Fund, or the IMF, along with other agencies came to the rescue, with certain conditions to be upheld. Greece was to perform actions such as cutting their budget, raising taxes, and others. This would not be accepted well in Greece however, because its people are used to living lavishly, retiring early, and not paying taxes. By making this move, many people would likely turn against the party in power, causing political uncertainty in a time where absolute leadership was imperative. With such sharp changes happening in the country, tragedy struck its people. The economy went into a deep recession, causing unemployment to spike to an all-time high in 2012. Because of the unemployment reaching over 24%, this caused homelessness to increase. This spiraled out of control then for Greek people with a jump in suicides nationwide and also the nation’s overall health of its people went down dramatically. Greece was in turmoil, and there was not much they could do to try and supplement their economy due to all of the limitations placed on them by the International Monetary Fund.

Greece was in such a bad position that they had no choice but to rise from where they stood financially. What it actually did, and what is its policy of recent years aimed at.