by Drishti Gupta
Have you ever wondered what a crisis is all about, what its causes are and how it has enough potential to expand its effect on all the future generations to come? Crisis is often linked to the concept of psychological stress and used to suggest a frightening or fraught experience. To be more specific, in case of study in economics, a crisis can be in the form of credit crunch, financial crisis, fiscal crisis, banking crisis, depression economics, oil price shock, currency crisis, housing crashes and more. All of them are closely intertwined with each other. This article specifically talks about one of the major financial crisis that ever occurred throughout the world, The Greek Crisis.
A financial crisis is a phrase that elicits dread in many people. One of the worldwide financial crises that did not leave any corner in the world untouched was in 2007 - 08, which we all are mostly familiar with. The Greek government - debt crisis was the sovereign debt crisis faced by Greece in the aftermath of 2007 - 08 recession. It proliferated among the Greek population as a series of sudden reforms and set of political-economic policies. These were aimed to reduce government deficit budget, which boomeranged back, leading to impoverishment and loss of income and property, as well as a small-scale humanitarian crisis.
The Greek crisis was also triggered by structural weaknesses in the Greek economy and lack of monetary policy flexibility as a member of the European Union. It revealed that government debt levels and deficits had been underreported by the Greek government. In 2009, Greece’s budget deficit exceeded 15% of its GDP. Fear among the masses and financial inability led to a shutdown of Greece’s ability to finance further debt repayments and ultimately led to the collapse of Greece’s bond market.
The Crisis was a reason for loss of confidence in the Greek economy, which was set off from the government’s act of twelve rounds of tax increases, spending cuts, and reforms from 2010 to 2016. After a popular referendum rejected further austere measures and led to closure of banks across the country, Greece became the first developed country to fail to make an IMF loan repayment on time. The country was veering towards bankruptcy. To avert this calamity, the troika — the IMF, the European Central Bank and the European Commission — issued the first of two international bailouts for Greece. These came with conditions which required Greece to overhaul its economy by streamlining the government, ending tax evasion and making it an easier place to do business.
This money was supposed to buy Greece time to stabilise its finances and allay market fears lingering among the masses. However, the money went toward paying off Greece’s international loans, rather than making its way into the economy. The government has a staggering debt which is difficult to be paid down unless the market recovers properly. Moreover, since Greece’s debt crisis began in 2010, most international banks and foreign investors have sold their Greek bonds and other holdings. This means that they are invulnerable to what happens in Greece. This has made Greece an incredible destination for investors and banks to pool their money into.
Now, European authorities have authorised handing 7.5 billion euros, or $8.4 billion, in bailout aid to Greece, which will allow the country to keep paying its bills in the coming months. The IMF has insisted that Greece cannot meet its budget goals without easing its debts. In all, the Greek economy suffered the longest recession of any advanced capitalist economy to date, overtaking the US Great Depression. As a result, the Greek political system has been upended, social exclusion increased, and hundreds of thousands of well-educated Greeks have left the country. Greece’s creditors have committed to debt relief, provided the country continues to carry out painful changes. It will be a slow road to recovery.