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Following the global economic crisis of 2008, and a period of borrowing money from banks, Greece could not repay its debts, which had risen to $400 billion. It caused the economic and social crisis in country in 2009, which affected almost all aspects of life of 11 million Greek citizens, changed the future development of the country and had a great impact on a worldwide economy. In order to stop it and get the help from other European countries the Greece government implemented many austerity measures, which included cutting jobs and public services, raising taxes, and plans to sell some Greek islands. Similar crisis have happened before in Greece and in various forms in many countries around the world, however, this one will define Greece for years to come (Petrakis, 2011; Spilsbury, 2012).
Economic crisis is a term, which serves for representing the periods of low or negative economic growth. The sequence of the economic impacts is almost identical in all financial crises. A crisis reduces the incentives for capital investment as the demand for products decreases while uncertainty and risk increase. Simultaneously, the financial system reduces funding to the private sector. The labor market is weakened, and thus, unemployment increases and further aggravates demand conditions (Furceri & Mourougane, 2009).
All elements of worldwide economy mutually influence each other. That is why the first main reason for economic crisis in Greece was the problem in Global economy. Towards the end of 2007, a period of continuous economic growth worldwide appears to be ending. The widely expected decline in the U.S. real estate market was threatening to end a prolonged period of prosperity in the developed world and slow the rapid economic growth of emerging economies (Petrakis, 2011). The 2008 crisis hit an already weak Greek economy that had largely exhausted the traditional means of facing a classic recession; these means included an expansionary fiscal policy, as the fiscal deficit had achieved very high levels in the preceding years (Petrakis, 2011).
Apart from global impact, economic crisis in Greece was caused by internal reasons, such as: the public debt at a rate, which was much higher than in the rest of the Eurozone countries; moreover, the level of the public debt has already been more than 100% of GDP; the evolution of the spread of 10-year bonds. The other reasons are the evolution of derivative prices based on these bonds; also the new public lending: the role of ratings by the three rating agencies, which downgraded Greece and eventually led it to withdraw from the international bond markets. The abovementioned factors had the great impact on the external conditions of the Greek crisis from November 2009 until May 2010, when Greece joined the European Stability Mechanism (ESM). This act can be characterized by three components. First, Germany’s attitude played a significant role since Germany did not give a clear position “to the markets that they were willing to provide immediate political and financial support to whichever country was facing financial problems” (Kouretas, 2010). Secondly, the USA’s attitude and economic policies - the conflict in the US between the Washington political capital represented by the Obama administration and the most aggressive funds of the Wall Street financial capital likely had many indirect consequences for the formation of the global environment around the Greek crisis. Finally yet importantly are the results of the international efforts to develop a policy for ensuring economic stability in Europe (Petrakis, 2011; Kouretas, 2010).
This crisis has had a great impact on Greek and worldwide economy. The situation caused a decrease in domestic demand, threatening the banking sector and further aggravating public finances (Petrakis, 2011). In addition, it caused country’s structural problems such as excessive expenditures. While the government spending increased by 87%, at the same time, earnings grew only by 31% over the past six years. Moreover, unregulated labor market, since the Greece adopted euro salaries, have rose at a 5% annual rate, while during the same period exports to its major trading partners have grew only by 3,8%; obsolete pension system - population aged over 64 in Greece is expected to increase from 19% in 2007 to 32% in 2060 (Impact of Greece Crisis, n.d.). Considering the impact on the other countries, it should be noted that if Greece defaults, there is a risk for other Southern European countries and all this together will put the future of the ECB at danger (Impact of Greece Crisis, n.d.).
To my mind, there are many solutions to recover the country from the crisis. For example, the first path is to drop the euro – it will help the country to return to fiscal health by using inflation to reduce the amount of its debts. The second option is to produce goods in depreciated drachmas; consequently, it will help Greece to become more competitive with its export prices. The third option is to cut spending – it will help to end the fiscal crisis, however, it is not effective against the broader economic crisis. The fourth option is to raise taxes – it will help to balance the budget by bringing the government’s earnings more in line with its spending. However, there are much more other solutions, which will help Greece to return the period of prosperity.
To sum up, economic crisis in Greece that has started in 2009, because of many outside and inside reasons provided consequences worldwide and in particular, to the Greek economy. It has brought many changes in the life of local citizens and provoked government to cut jobs, public services, and raise taxes and sell some national property. There are several solutions of this situation and the key path among them is a right organized Greek domestic and foreign policy.
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