Global Economics assignment on the Greece economic crisis

Question

Task: How to assess variables that led to the Greece economic crisis using Global Economics assignment techniques

Answer

Introduction
This Global Economics assignment explores the economic turmoil experienced by Greece in 2015 and how the country can avoid such issues in the future. Greece became a member of the European Union (EU) in 1981 and penetrated the Eurozone in 2002. The European Union is an international entity consisting of 27 member states of Europe like Denmark, Austria, Italy, Finland, Spain, Greece and others. The organisation eradicates all border controls between the member states to facilitate the free flow of goods and services. Greece is positioned 38th amongst 45 nations in the European territory with an economic freedom mark of 61.5. However, there has been a major downturn in the Greece Economy, and this paper aims to provide an in-depth analysis of the Mismanagement of Fiscal Policy: Greece's Achilles' heel Problem. Greece was undergoing a situation of a financial crisis because of organisational issues and organisational tax evasion. The goods and services manufactured by Greece were less competitive than that of other European Union member states. This is the major reason for the county going into an indomitable debt leading to the financial crisis in 2015.

1. Economic Implication of Europe if Greece was not present
As per the Global Economics assignmentfindings, Greek withdrawal from the Eurozone is an imaginary scenario debated mainly by historians in the mid to early 2010s. In this scenario, Greece exit from Eurozone to deal with the debt emergency current faced by the Greek government at that time. Leaving the Eurozone would restore their drachma currency, resulting in an immediate boost in tourism and exports but also discouraging exclusive imports, which in many cases would raise the possibility of recovering the Greek Economy. This proposal would also inflict extreme hardship on the Greek people affecting wealth decline and primary consumption. Leaving from Eurozone would also lead to a sequence reaction in every nation, including Eurozone, causing financial fear in other countries like Spain. There would also be the rise of unintended consequences meaning the finance system could get affected by non-appearance (Afonso, 2019). Greek Businesses could also face many financial and legal disasters as many contracts would end up in a dispute about whether to convert or not in legal terms. Many businesses in Greek would still be left bankrupt from their debts more than they own and face insolvent losses. On the broader scale of the Eurozone, many investors would cut investment due to the Euro's future reasons. Leaving Greece would also boost many anti-European political forces and Anti-Euro Union in many other countries. Mainly in the European Nation, the stock market could drop up to 50 per cent in rate, harmfully affecting their skill to service their independent debts. It is also observed on this Global Economics assignment thatGreece's Central banks would also start with a QE plan, and the government would run shortfalls and no longer be controlled by bailout guidelines. Theoretically, researchers also discuss that it would be bad for Eurozone if Greece exits from a union where lots of EU banks would be visible to Greece; initially, ESFS would lose 21% of its holding value and more likely to 50%. There would also be severe implications for EU banks, risking serious bank failures. The same goes with the Greek banks that would be running a loss into capital control, resulting in not more than 60 Euros reserved from ATM machinery. The parallel currency would be helpful in such cases to regain Greek Capital, the instant bulge of its approaching repayments debt (Del Sarto, 2015).

The thought of the Greek withdrawal is a danger for the Eurozone, which might do a broader scale of loss to the Economy, but this risk has entirely reduced from 2012. As per Global Economics assignmentinvestigations, if Greece takes a leave from Eurozone than other countries, depositors would also be struggling in Eurozone like Italy and Spain who moved their deposits towards safer German Banks. On the other hand, Greek would fall living standards to 80% in fewer weeks which would be unable to borrow from no one and Greek would merely turn out of Euros (Florio et al., 2018). In a more extended economy, Greece should have an advantage from competitive interchange rates. However, devaluation would still be an unsettled problem in financial matters, including struggle in spending government control and poor tax collection. The outcome of such a crisis would still be argued through many problems and matters. Leaving the Eurozone would affect every nation surrounded by it, resulting in positive and negative factors. For both Greece and Euro Union, the effects are both temporality and communal to be sustained. However, the remaining result seems to be a solidification of the EU concentrating bents even as development closer towards union (Taran et al., 2022).

2. Greek Macroeconomic issues addressed by the economic policies of the European Community

Macroeconomic policy ensures stable economic condition to facilitate sustainable economic development. Creation of better job opportunities for people and improvement in the well-being and standards of living is possible due to a nation or organization’s macroeconomic policies. These policies impact the decision-making function of policy makers (Chari & Kehoe, 2006).Eurozone refers to the member states of the European Union which use the Euro as the national currency. There are several macroeconomic benefits for the countries within this zone because of the utilisation of the Euro. The cost of the transaction of this currency is comparatively low because of the ambiguity and volatility of nominal exchange rates. The trade between countries within the Eurozone is increased because of the free flow of trade. The financial assimilation across the nations is enhanced owing to the decreasing rates of equity. The price transparency amongst countries supports lesser market bifurcation with no price discrimination(Balland et al., 2019). The Global Economics assignment shows that the Eurozone supports the growth and macroeconomic stability of the member countries, and the functions of the European Central Bank have reduced inflation in member countries. Greece became a member of the Eurozone in 2002, and the economic policies of the Eurozone might have led to the downfall of Greece's economy(Mizrak&Yuksel, 2019). However, the Greek economy experienced structural issues before adopting the Euro as its currency, and its economy almost collapsed. Before penetrating the Eurozone, there were major issues in Greece's economy. There was a spike in inflation rates, a decrease in trade, lower development rates and a crisis in exchange rates because of the fiscal policies implemented by the Greek Government. It was due to these reasons that Greece decided to become a part of the Eurozone by joining the European Monetary Union (EMU). Adopting the Euro as its currency, Greece aimed to decrease the inflation rates, lessen the nominal interest rates, support investments and increase the economic growth of the country(Del Sarto, 2015). The financial crisis in the economy was expected to be solved. However, there was a loophole created for the member countries of the European Union. Greece required a significant adjustment in its organisational structure to come to terms with the 1992 Maastricht Treaty, which was previously known as the Treaty of the European Union. The main purpose of the treaty was to pave the way for the Euro currency and the creation of the European Union citizenship(Barth &Bijsmans, 2018). However, it limited the government debt to 3% of the Gross Domestic Product (GDP) and public debt to 60% of the GDP. Greece struggled to match this criterion during the 1990s. The debt limits of Greece were nowhere in accordance with the limits of the treaty. After penetrating the Eurozone, Greece hoped to mitigate the debt issues and enhances its overall economy. It is significant to note that the Greece Government altered the budget figures to fulfil the conditions of entering the Eurozone. Greece was viewed as a safe nation to invest in, which reduced the interest rates for the country. This reduction in interest rates facilitated Greece to borrow a hefty sum of money at a comparatively cheaper rate than before it entered the Eurozone(Brki, 2016). Greece's expenditure increased notably, and its economy enhanced as well. Despite this fact, the ingrained issue of fiscal policy remained unsolved. The macroeconomic issues of Greece identified on this Global Economics assignment were because by the overspending and lack of revenue(Grabner et al., 2020). There was a structural gap between Greece and Germany because of the utilisation of a single currency which spiked the fiscal policy issues. The Greek goods and services were less productive in comparison to Germany. The implementation of the Euro currency increased the competitiveness gap between the two countries because German products were cheaper than the ones in Greece. Germany benefitted by increasing exports to Greece, and Greek borrowed cheaper goods and services from Germany. However, the global recession impacted Greece negatively, and it faced a severe financial crisis. The International Monetary Fund and trusted European investors bailed out from backing Greece during this crisis, making the fiscal situation worse for Greece.

3. Contribution of the policy decisions made by Greece since 1973 to the sovereign debt crisis in 2010
The situation of the Sovereign Debt Crisis arises when a nation is unable to pay its bills leading to socio-economic turmoil in the country. In 2010 several European countries like Italy, Greece, Portugal and Spain experienced this situation which had a negative impact on the economy of these countries. The debt increased rampantly, contributing to the collapse of the financial situation. European businesses and organisations suffered major losses and a fall in the economy(Acharya et al., 2018). The ratio of debt to GDP was significantly less during the 1980s before Greece became a member of the Eurozone and adopted the Euro as a common currency. When Greece entered the Eurozone, its financial condition was stable for some years, but it declined rapidly over the years to come. During 2001-2008 there was a boost in Greece's economy which led to overspending and increased debt. Towards the end of 2008, due to the fiscal profligacy, Greece's debt load had surmounted exceedingly and crossed the limits of the European Union's Stability and Growth Pact(Lane, 2012). The fiscal deficit limit for the Eurozone was 3%, whereas Greece's fiscal deficit in 2000 was 3.7% which exceeded the EU limits. This led to the investors demanding a higher turnover for sovereign debts by Greece. Before this, the fiscal debts were masked by the wealthy members of the European Union like Germany(Mariolis et al., 2018). The Greek Government borrowed at much cheaper rates to fund economic operations even when there was insufficient tax revenue. During 2009, the fiscal deficit increased to 12.7%, which raised the debt crisis situation. During 1980, Greece spent 10.3% of the GDP and 23.5% in 2011, which was below the average expenditure of the European Union. This was due to organisational tax evasion. Greece's debt at this point was moved to a junk status meaning Greece was dropped from the acceptable investment-grade limit to the junk grade limit. The ability to borrow funds was curtailed for Greece, and the rates for any new debts also considerably increased. Greece faced bailouts from the European Union and the International Monetary Fund. Bailout funds for Greece had to suffice the austerity measures, which aimed to decrease the rate of public debts(Rachiotis et al., 2015). These fiscal policies concerning public expenditure and revenues contributed to Greece's financial downfall. Greece was unable to repay the taxes and refinance public debts leading to a collapse in the economic scenario. The previous Greek Government had altered the budget debit reports to meet the standards of entering the Eurozone. This was a violation of the European Union Policy, which contributed majorly to the fiscal debt crisis in the country. Greece required immediate assistance from the Eurozone in 2010, but it received bailouts instead. The country's economic status deteriorated, which led to socio-economic unrest and impacted the growth of the country negatively.

4. Actions are undertaken by Greece Government and National Banks to instrument fiscal and monetary policies
As per Global Economics assignment findings Before its entrance into the Eurozone in 2001, the economy of Greece was plunged by numerous issues. The Greek Government during the 1980s had followed expansionary monetary and fiscal policies. The policies, however, rather than reinforcing the economy of the country, suffered elevated fiscal and trade deficits, mounting inflation rates, and a low exchange and growth rate crisis(Simou&Koutsogeorgou, 2014). During such dismal economic conditions joining the EMU or the European Monetary Union appear to provide a gleam of hope. It raised a certainty that the monetary union assisted by the EBC would significantly dampen inflation by lowing nominal interest rates and encouraging private investment, which can become an offshoot of economic growth. The entrance into the Eurozone was, however, conditional since Greece required the most amount of structural adjustment to be able to conformto the Maastricht Treaty guidelines 1992. The treaty limited the discrepancies of the Government to 3% of GDP along with public debt to 60% of GDP(Grauwe& Ji, 2013). Greece made all the attempts to structure its fiscal house for the remainder of the 1990s to attain these criteria. The acceptance of Greece into the Eurozone had emblematic connotations since various investors and banks alleged that the single currency obliterated the distinctions among European nations. Greece was suddenly professed as a safe abode to invest in, which consecutively minimised the interest rates that which Greek Government had to pay. The interest rates for the greatest of the 2000s, which Greece faced, were largely comparable to those tackled by Germany.

The lesser interest rates facilitated Greece to derive at a significantly cheaper rate than pre-2001 which fuelled an upsurge in spending. The economic evolution was indeed overshooting for a number of years; however, Greece had still not tackled its deeply installed fiscal issues, which were not chiefly a consequence of disproportionatespending(Psychogios et al., 2019). The fiscal problem of Greece stemmed primarily from a massive absence of revenue which was a result of methodical tax evasion. Usually, wealthier, self-employed employees are inclined to under-report their income and over-reporting their payments of debt. The existence of this conduct revealed that a significant issue of the social norm was prevalent, which was not remedied in time. The global financial crisis, which was initiated in 2007, shows the real nature of the financial conflict of countries all across the world(Johnstone et al., 2019). Greece was one such country, and the previously paltry tax revenues of Greece were weakened by the recession, thereby resulting in the worsening of the deficit. Greece started to face a liquidity catastrophe as the capital started to dry up, forcing the Government to pursue funding for a bailout which was ultimately received under reliablecircumstances. As stated by Marangos&Triarchi (2020), the global financial crisis of 2008 did not lead to the development of a new prominent method in macroeconomics. It paved queries about the existing archetype along with its catastrophein predicting the catastrophe and itsrepercussions. Research during the Global Economics assignment show that Bailouts from European creditors and theIMF(International Monetary Fund) were provisionaland conditional on the reforms of the Greek budget, specifically higher tax incomes and spending cuts. These severe measures produced a vicious cycle of collapse, with unemployment hitting 25.4% by August 2012. The formation of a fiscal rule, along with its severity, coincides methodicallywith the fiscal circumstance of the country(Heinemann et al., 2018).

These dealings, when applied during the poorest financial crisis of the world after the Great Depression, thereby proving to be one the biggest factors ascribed to the economic collapse of Greece. This incident stressed the importance of proper implementation of financial subsidies and how it can lead to proper regulation of social and economic policy, thereby resulting in economic development(Xu & Wang, 2022).

5. Comparison of Greek Economic Policy with Australian Economic Policy
The Greek debt crisis is the treacherous quantity of sovereign debt which Greece owed to the European Union between the periods of 2008 and 2018. Greece, in the year 2010, stated that it might be evasion on its debt which threatened the feasibility of the Eurozone. In order to avoid default, Greece was loaned enough by the EU to continue making payments. The budget deficit of Greece in the year 2009 exceeded 15% of its GDP. The terror of default broadened the ten-year bond spread and led ultimately to the collapse of the bond markets of Greece. This would shut down the ability of Greece to finance additional debt repayments.

Greece wanted the EU to pardon some of the debt. However, the EU did not want to let Greece off with impunity. Germany, along with its bankers, was the biggest lender to Greece, and they advocated austerity measures. The fiscal problems of Greece at the root level are curtailed by a significant lack of income(Pegkas, 2018). Greece's social expenditure as a percentage of GDP was 10.3% in 1980, in 2000 it was 19.3%, and in 2011 it was 23.5%, whereas the social expenditures of Germany during the same period were 22.1%, 26.6% and 26.2% respectively. Greece in the year 2011 was underneath the average EU of 24.9% in terms of social spending. Systematic tax evasion was one of the primary reasons for this lack of revenue.

In stark contrast to Greece, the established world reputation of Australia for the longest time has been that of an underpopulated wealthy country that is prone to natural disasters, and the economy of the company is dependent largely on foreign investment and agriculture(Van Dijk et al., 2013). As per Global Economics assignment findings, this definition was fair during the first century of the European settlement at the time when exports of wool reigned supreme; however, after the growth of services and manufacturing through the developments in mineral exploitation after World War II, this image of Australia was shattered. The country then assumed a policy of rebuilding on the basis of rationalisation and nationalisation. This stated that the administration would uphold control over the economy’s striking heights in order to restrain inflation, continue economic growth and introduce full employment. Greatemployment levels, mounting foreign investment, expansion of new marketplaces and economic growth led Australia to relish a greater level of affluence during the post-war period.

According to Martinus et al. (2018), the economy of Australia has altered histrionically over the past quarter of a century. The culmination of the rise of the services economy, increasing dependence on natural resources, neoliberal reform and the rearrangement of the country's industrial sector has malformed the economy of the nation collectively. The restructuring and economic reform under the Coalition government, which was led by John Howard, took power in 1996, wherein a productivity commission was established along with deregulation of labour markets. One of the primary results of this economic improvement is the open economy of Australia, with a significant rate of economic development. Thus, the primary distinction between the economic policy of Greece and Australia is the integration of economic policies to benefit the workers of the country and seek equal treatment with no hierarchy prevalent.

Conclusion
The Greek economy has been one of the overarching topics and is one of the prime examples of mismanagement in fiscal policy. Against the background of the Greek economy, the report has worked towards providing a response to five key questions. The economic implications for Europe if Greece were evicted from the Eurozone have been analysed. Apart from that, the macroeconomic issues of Greece and economic policies used by the European communities have been analysed at length. The policy decisions undertaken by Greece which led to its debt crisis have been analysed. The Global Economics assignment also provides actions undertaken by the nation to answer to the global occupational cycle and compares the economic policies of Greece and Australia.

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