The paper "Why the International Institutions Have Failed in the Economic Recovery of Greece" is an outstanding example of a business case study. In the past decade, Greece has been characterized by an increase in external loans. Greece has been relying heavily on international capital markets to acquire financial support that will contribute to funding its government budget and numerous account deficits. The increase in loans by Greece is mainly attributed to the weak revenue collections, poor social and economic reforms and the low rate of borrowings from the European Union and the International Monetary Fund.
This report will evaluate the factors which have hindered the EU and IMF as international institutions from succeeding in helping Greece recover from the economic crisis experienced in the country. Since the 19th century, a number of nations experiencing financial crisis have been faced by opposition by their governments to fulfill their debt obligations (Hilsenrath, 2010). According to Reinhart (2009), financial crises in most instances contribute to an economic downturn, increased government deficits and debts, in addition to low levels of revenues in a country.
During an economic recession, some countries tend to be faced with a sovereign debt crisis as is the case with Greece. For instance, in 2010 the International Monetary Fund and Eurozone members organized a financial aid for Greece in order to avoid a Greek government default as well as the influence of Greece financial crisis to other European nations (Reinhart, 2009). These two international institutions offered a sum of $ 145 billion to the Greece Government in order to assist the country in recovering from this economic crisis. In addition to this, the European Union (EU) also contributed $636 billion towards Greece’ s financial recovery and also to put a stop to a contagion of the crisis to other European countries (Hilsenrath, 2010). Greece is currently relying on globally coordinated projects since the year 2010 in order to assist the government of Greece in reducing its fiscal deficit.
International institutions such as the European Union and the International Monetary Fund have funded the country in implementing structural reforms which will contribute in increasing the labor markets in addition to upgrading the nature of labor competition in Greece (Erlanger et al, 2010).
International institutions have brought a positive impact on the economic growth of Greece by encouraging economic developments since 2010. These institutions have offered both financial aid and support for Greece to be able to achieve fiscal sustainability, reduce debts and decrease unemployment in the country. However, despite the continued financial support from international institutions, Greece continues to suffer from an economic crisis and some economists fear that the country’ s government might default eventually (Hope et al, 2010). In the years 2001 through to 2007, the GDP of Greece increased on an annual basis with a rate of 4.3% (International Monetary Fund, 2009).
The high economic rates were attributed to the accessibility of credit at low rates from international institutions in addition to public investments which are financed by the EU and the central bank. According to Becatoros & Eddy (2010), this led to an increase in government expenditures and budget deficits in addition to an increased and inadequate public administration. Greece’ s deficit was fueled by the costly administration and health care facilities that were heavily facilitated by tax evasion as well as lack of discipline in borrowing.
According to Becatoros & Eddy (2010) in the year 2004, the spending power of the Greece public administration rose drastically and was identified as the highest compared to any other country in the OECD. Over the past few years, the extravagant spending of public expenditure has continued in this country despite any assistance by external institutions to help in economic recovery in Greece. For instance, in 2009, public spending in Greece accounted for 50% wages and 75% other non-profitable factors such as wages and social benefits (International Monetary Fund, 2009).
Becatoros, E. and Eddy, M. (2010). “Greece Still Under Siege Despite Aid Pledge,” WTOP.
Economist Intelligence Unit, (2010). “Greece Economy: An Austere Future,” Economist Intelligence Unit.
Erlanger, S., Bennhold, K. and Sanger, D. E. (2010). “Debt Aid Package for Europe Took Nudge from
European Commission, (2004). Report from the Commission: Greece, Brussels, May 19, 2004, http://ec.europa.eu/economy_finance/sgp/pdf/30_edps/104-03/2004-05-19_el_104-3_en.pdf.
European Commission, (2007). Recommendation for a Council Decision Abrogating Decision 2004/917/EC 9 on the Existence of an Excessive Deficit in Greece, Brussels. Retrieved From: http://ec.europa.eu/economy_finance/sgp/pdf/30_edps/104-12_commission/2007-05-16_el_104-12_commission_en.pdf.
Hellenic Foundation for Foreign and European Policy (ELIAMEP), (2010). Economic Fact Sheet Greece 2009/10, March 2010; “Is Greece Heading for Default?,” Oxford Economics.
Hilsenrath, J. (2010). “Q&A: Carmen Reinhart on Greece, U.S. Debt and Other ‘Scary Scenarios’,” Wall Street Journal.
Hope, K., Politi, J., and Fifield, A. (2010). “G20 to Look at Monetary Fund Initiative,” Financial Times.
International Monetary Fund,(2009). World Economic Outlook, October 2009 and European Commission, DG Economic and Financial Affairs. Retrieved From: http://ec.europa.eu/economy_finance/publications/european_economy/public_finances_emu_en.htm.
Mollenkamp, C. and Bryan-Low, C. (2010). “Greece Leaps One Key Hurdle,” Wall Street Journal.
Reinhart, C. (2009). “The Economic and Fiscal Consequences of Financial Crises,” VoxEU.
Washington,” New York Times.