Greek Debt Crisis

Only available on StudyMode
  • Download(s) : 90
  • Published : April 10, 2013
Open Document
Text Preview
Over the past few years, Greek’s ability to pay its sovereign debt became a major issue facing economies worldwide. The downgrade of Greek debt to “junk bond” status made Greek default seem inevitable, causing alarm to permeate financial markets worldwide. Unsustainable spending by the Greek government through the creation of a “welfare state” in Greece was a principle cause leading to the Greek debt crisis, which affected even the United States’ economy. High-paying public jobs, excessive pensions, and non-prosecution of severe tax evasion all helped produce the “welfare state” that is present in Greek culture. The default on Greek debt would then have a ripple effect, causing uncertainty in Euro zone markets, and eventually would spread to the rest of the world, including the United States. Over the past few decades Greek culture became accustomed to exceedingly generous government subsidized welfare programs and now expects that these programs will be in place forever. However, these programs produced a large portion of the enormous debt held by the Greek government. Public sector jobs in Greece pay, on average, three times that of private jobs for similar skill levels (Lewis, Boomerang 44). Related, over the past ten years the public wage rate doubled (Malone). Every Greek strives for employment in the public sector because of the liberal benefits distributed to government employees. Greek government jobs are generally held by long-term employees, until retirement. If a job is classified as “arduous”, retirement age is fifty-five for men and fifty for women, with a pension distribution equal to ninety-five percent of his/her final years salary. Examples of “arduous” positions include hair dressers, radio announcers, waiters, musicians (Lewis, Boomerang 46). As stated in Boomerang by Michael Lewis, “The banks didn’t sink the country; the country sank the banks (Lewis, Boomerang 46)” Hellenic Railways (Greek’s government run rail system) exemplifies the astonishing inefficiency that is present throughout public sector jobs in Greece. An engineer working in the mountainous Peloponnese region makes $130,000 per year for driving a train that runs empty the majority of the time. The average salary for a Hellenic Railway employee is over $78,000, and the average daily loss equals $3.8 million (Thomas). The total debt attributed to the rail system is $13 billion, or five percent of Greece’s gross domestic product (Thomas). What is the reason for the astonishing debt? The rail system is essentially free for all of Greece. Riders need only to “validate” their ticket before riding. With no repercussions stopping them, very few do. Greek’s government debt total does not include debt assigned to the rail system, so essentially the rail system is a tactic for supporting public sector employment, while shielding more debt from the eyes of economies worldwide. Tax collectors in Greece also epitomize the issues that led to the “welfare state” present in Greece and the tremendous debt levels. Like many other government jobs in Greece, tax collection is treated as a sinecure, or a position requiring little or no work, but giving the holder elevated status or financial benefit. As stated by Michael Lewis in an interview with NPR, “If you’re too good at trying to collect taxes from Greeks, you get fired.” Tax collectors in Greece will tell you that their job is to be bad at their job. Bribery runs rampant in the tax collection process. It is customary for Greek citizens to bribe tax collectors to sign off on their fraudulent return. A “bribe rate” was even established. However, if a tax collector blows the whistle on a colleague who accepted bribes, the whistle blower would most likely be taken out of the field and demoted to tedious office work (Lewis, Boomerang 50). As said in Suzanne Daley’s article, Greek Wealth is Everywhere but Tax Forms, “We were busy going over forms, checking on those who pay taxes, not those who didn’t.”...
tracking img