The Greek Financial Crisis: An Overview of the Crisis in Entirety and Proposed Measures: Recommended Solutions and REsults

摘要

This paper examines the Greek financial crisis from 2009 in entirety and analyzes the best option for economic growth from this point forth. The history and culture of Greece is discussed, along with a background of the economy and several economic policies that led to the increased debt levels and the poor economic health of the country. The Gross Domestic Product of Greece and the inflation levels are analyzed to show the changes and signs of poor economic health, and one that was affected by the entry into the Eurozone in 2000.Then, I discuss how this led to the 110 billion euro bailout package the country received in May of 2010 with funds from both the IMF and the EU. The package was designed to prevent Greece from defaulting on its massive amounts of debt, and intended to cut the public deficit and national debt in the upcoming years. This package only postponed the country’s deeply embedded financial woes and a possible default until it received a second bailout package. In March of 2012, Greece reached a debt-swap deal which halved its debt-load, and also received the second bailout worth 130 billion euros. Debt was expected to fall, GDP contract, and unemployment rise, all in reaction to the new measures and further cuts. Since this bailout package is recent, it is difficult to measure the effectiveness of it so far, but is more realistic in aiding the economy than the first bailout package.After discussing the two bailout packages, I use Argentina as a country of comparison regarding its own crisis and default in 2001. Like Greece, Argentina accumulated an unpayable debt because loans were recklessly taken and offered. Greece and Argentina share various similar features in relation to their economies, policies, and crisis; the difference is the solution as of yet that is different, as Argentina defaulted on its large amount of debt and Greece accepted a second bailout. The deep comparison to Argentina is very important, and many lessons can be taken from the country, since its economy excelled after defaulting on debts and dropping the peg to the dollar. Other than Argentina, other countries with similar situations and crises are discussed, such as the neighboring Eurozone periphery countries of Spain and Ireland. They shared some economic difficulties and recession also partly due to the Euro and the halt of capital flows after fears of risk of default, regardless of how well they had managed their finances. The common joint currency also played a very large role in creating crisis, and not only some irresponsible behavior of the countries. Outside of the Eurozone, another case is made regarding the financial crisis in Mexico which is also somewhat similar to that of Greece.After analyzing similar crises, I discuss the concept of odious debt, the countries it was applied to, and that it can possibly be used in Greece’s case by showing that a large amount of the debt incurred was illegitimate. Lastly, the current economic situation of Greece is reviewed, along with what options the country has- defaulting and leaving the Eurozone, or accepting and abiding by the terms of the second bailout, and getting the private sector involved. The second bailout package is the best option to take when comparing it to a major default, which would be disastrous on the Greek economy and for the people, and also much more difficult than in Argentina’s case. Some of the massive amounts of debt should also be declared as odious if this can be proved by conducting a thorough audit. The second bailout will hopefully steer the economy in a better path and lead to overall economic growth in the years to come, although it has some harsh measures many Greeks are having difficulty accepting. To conclude, the road to recovery will not be easy, but it is possible even without a default at this point, as was done in Argentina. Reforms have to be made, new opportunities taken, the bureaucracy simplified, the corruption in government mitigated, and a change of lifestyle for many Greek people.