The paper "Effects of the Financial Crisis in the Greek Context" is a wonderful example of a case study on macro and microeconomics. The recent 2007-2009 financial crisis is undoubtedly the most severe impediment to the economy of the world ever since the great depression. The origin of the crisis was linked to the United States. According to financial analysts, what began in the United States as a credit crunch extended to almost all nations of the world causing severe implications to many economies. For instance, European countries such as Greece could barely survive.
Although the crisis is over, its effects can still be felt. This paper seeks to examine how the recent financial crisis affected the economy of Greece. The scope of the analysis will also be grounded on the possible reasons why interest rates have remained so low over the years. How the recent financial crisis affected the economy of Greece Greece hit global headlines essentially in the year 2009 when the crisis developed into a sovereign debt crisis, which eventually metamorphosed into a recession that was full-blown. One of the key impacts of the crisis on Greece is that banks become hostage to the crisis.
Ewing, (2011) discloses the fact that banks in Greece were trapped in the middle of the turmoil that was taking place in the country. In contrast to the government, banks in Greece were well managed and prudent before the crisis. Nevertheless, the banks become victims of the debt woes of their government. One of the implications is that banks were subjected to dependence on the European Central Bank. This was due to the requirement that they were only allowed to borrow from the ECB.
Many banks, therefore, complained that the E. C.B was pressing them to lower their dependence on funding from the central banks. Such a move affected not only the banks but also customers and businesses who found it difficult to access credit (Ewing, 2011). Operations in the banking sector essentially in commercial banks were also greatly affected by the crisis. Historically, Greece commercial banks have had a relatively small and increasingly saturated domestic market; as a result, many Greek commercial banks expanded their operations to regions such as southeast Europe through establishing branches and acquiring subsidiaries.
Big commercial banks in Greece such as; EFG, Eurobanks, Alpha, and Piraeus had greatly expanded their operations. However, the recent financial crisis created a potential risk of failure. Different from other nations, the Greek government did not have spare financial resources that be used to bail one troubled bank, which raised the threat of eventual failure (World Investment Report, 2010). The GDP of Greece also experienced a rapid decline due to the financial crisis. Greece first plunged into a recession in the year 2008 within a global slowdown that was instigated by the financial downturn.
According to the Bank of Greece, the GDP has been declining since 2008. By the year 2011, it was estimated that the reduction would reach 5.5%, however, it eventually reached 7%. The reduction in GDP was mainly linked to a decrease in public and private investment and consumption. Private consumption for instance was linked to the decline in disposable income of households, a reduction in banking financing, and the number of employees (Karasavvoglou and Polychronidou, 2013).
A decline in GDP has also been influenced by consecutive adoption of austerity measures that were demanded by the International Monetary Fund and other Eurozone partners in exchange for the rescue fund provided to Greece. Such demands have heavily weighed down on the economy leading to a decline in GDP. By September 2013, the economy of Greece had contracted by roughly a quarter (Granitsas, 2014).
BBC News 2014, Bank of England says keep interest rates low for now, BBC News.
Ewing, J 2011, Greek Banks Feel Hostage to Debt Crisis, The New York Times.
European Central Bank, 2013 , The economic consequences of low interest rates, ECB.
Federal Reserve,2014, Why are interest rates being kept at a low level, Board of governors Federal Reserve system
Granitsas, A 2014, Greek Crisis More Painful Than Thought, The wall street Journal.
Karasavvoglou, A and Polychronidou, P 2013, Economic Crisis in Europe and the Balkans: Problems and Prospects, Springer Science & Business Media.
Matsaganis , M 2013, The Greek Crisis : Social Impact and Policy Responses , Friedrich Ebert Stiftung .
Notta, O and Vlachvei 2014, The impact of Financial Crisis on firm performance in case of Greek food manufacturing firms . Economics and Finance, 14(2014), 454-460.
Poole , W and Wheelock, D 2008, Stable Prices, Stable Economy: Keeping Inflation in Check Must Be No. 1 Goal of Monetary Policymakers, The regional Economist.
Stylidis, D and Terzidou , M, 2014, Tourism and the economic crisis in Kavala, Greece Original Research Article, Annals of Tourism Research, 44 (2014), Pages 210-226
Vlamis , P 2013, Greek Fiscal Crisis and Repercussions for the Property Market, Hellenic Observatory Papers on Greece and Southeast Europe.
World Investment Report , 2010, Investing in a Low-carbon Economy World investment report past issues, United Nations Publications.