The Greek Debt Crisis and the Future for Greece’s Economy
The Greek Debt Crisis and the future for Greece’s economy
Introduction
After joining the European Union in 2001, Greece has been more capable to borrow money and has been recklessly increasing its public spending ever since. The outcome of this was a major debt deficit which later transformed into a risk of sovereign default. This could possibly result in major consequences for the global economy if a default was to occur. This essay will be structured by firstly examining the development of the Greek debt crisis and the response to the crisis. Thereafter the possible implications will be discussed. Finally, the solutions to this crisis will be considered and to provide a conclusion.
The Development of the Greek Debt Crisis
In 2001, Greece was able to join the European Union by falsely reporting its debt levels; membership of the European Union meant that borrowing money became more capable. To take advantage of this trait, Greece increased its borrowing, public spending and focused on projects such as the 2004 Olympics, causing them to widen their deficit (BBC, 2010). In 2008, the world experienced the financial crisis which had a major impact on the global economy. Greece experienced a decrease in real GDP growth of 2% in 2008 compared to 4.5% in the two previous years (Ministry of Finance, 2010). In October 2009, George Papandreou was elected as the new Prime Minister and discovered that Greece has been understating its public debts for years. Due to the occurrence of the financial crisis and its increasing debt deficit, Greece was close to default which caused the investors to demand a higher yield on Greek bonds. The cost of borrowing for Greece increased dramatically and the financial position of Greece worsened. If Greece was to default, a negative multiplier effect may be unleashed and cause the global economy to suffer. Despite its financial position, the Government stated that it would not turn to the International Monetary Fund for financial aid
Introduction
After joining the European Union in 2001, Greece has been more capable to borrow money and has been recklessly increasing its public spending ever since. The outcome of this was a major debt deficit which later transformed into a risk of sovereign default. This could possibly result in major consequences for the global economy if a default was to occur. This essay will be structured by firstly examining the development of the Greek debt crisis and the response to the crisis. Thereafter the possible implications will be discussed. Finally, the solutions to this crisis will be considered and to provide a conclusion.
The Development of the Greek Debt Crisis
In 2001, Greece was able to join the European Union by falsely reporting its debt levels; membership of the European Union meant that borrowing money became more capable. To take advantage of this trait, Greece increased its borrowing, public spending and focused on projects such as the 2004 Olympics, causing them to widen their deficit (BBC, 2010). In 2008, the world experienced the financial crisis which had a major impact on the global economy. Greece experienced a decrease in real GDP growth of 2% in 2008 compared to 4.5% in the two previous years (Ministry of Finance, 2010). In October 2009, George Papandreou was elected as the new Prime Minister and discovered that Greece has been understating its public debts for years. Due to the occurrence of the financial crisis and its increasing debt deficit, Greece was close to default which caused the investors to demand a higher yield on Greek bonds. The cost of borrowing for Greece increased dramatically and the financial position of Greece worsened. If Greece was to default, a negative multiplier effect may be unleashed and cause the global economy to suffer. Despite its financial position, the Government stated that it would not turn to the International Monetary Fund for financial aid
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