The dubious distinction of history’s first recorded sovereign default belongs to Greece—the same nation at the forefront of the world’s second major financial crisis in five years. The crisis raised a question: Whether the crisis is a tragedy or opportunity for Greek? I believe even Greek have taken measures to reform, this crisis would continue until Greek government come up with solutions which are not created by other countries and international institutions to protect their benefits.
Trouble in Public Finance
Greece faced deep economic problems. Most notorious was public-sector deficit.(See Exhibit 1) The debt-to-GDP ratio measures a country’s ability to pay off the entire debt with one year’s income, regardless of the nation’s wealth or total debt outstanding. Exhibit 4 shows the possibility that Greeck default is increasing. Two most outsized component of government expenditure were employee compensation and pensions. Greek government has taken austerity measures to reduce the deficit and meet the request of the international institutions who provide financial aid to Greece.
The weaknesses of the economic model
The global economic crisis of 2008 has found the Greek economy with several fundamental weaknesses: • Reliance on ‘easy money’ (such as from the stock market or property), as well as on over-inflated private consumption, which has in turn relied on loans in recent years. • The disproportionately central role of construction as the ‘driving force of the economy’ dating back to the 1960s. • Particularly high public debt, which remains undiminished despite the widespread privatisations of the last 20 years. • Over-reliance on sectors directly affected by the international crisis, such as tourism and shipping. • Excessive dependence on oil consumption, an energy-wasting, pollution-generating energy model and the prospect of high-cost ‘emissions rights’ from 2012 onwards. •...