Essays on The Debt Crisis in Greece Essay

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This paper "The Debt Crisis in Greece" can be seen as an impressive example of an essay in Macro & Microeconomics.   All economies around the world pass through ups and downs. This is a normal phenomenon that economies encounter and the government needs to devise ways to ensure that the magnitude of the downturn is limited. The recent economic crisis hit major economies all around the world resulting in falling growth rates for economies. The crisis was so severe that even after a couple of years of the financial crisis economies are finding it difficult to come out of recession.

One of the European Union economies that were affected was Greece.   The Greece economy was growing at a strong rate of 4.2% during the year 2000 to 2007. This made the government look towards large structural deficits as the economy was growing and the yield from the government bonds were falling (Smith, 2011). The use of the Euro in 2001 made it easy for the Greece government to devalue the currency so that they were able to finance easily. Suddenly the world crisis of 2007 deepened and affected Greece badly as the economy relied mainly on tourism and shipping which was badly affected (Smith, 2011).

Both this business was badly affected which was the starting point of the financial and debt crisis of Greece. The government to ensure that the sentiments among the people were positive and the impact of the crisis was minimum was looking towards concealing the information regarding the financial debt from the European Union and the government (Debt Crisis, 2010). This made the government take improper measures by concealing the information by paying hundreds of millions to Goldman Sach to hide the information. The financial crisis further deepened as all economies including the US economy were unable to recover.

This resulted in the widening of fiscal deficit which then has a widespread effect. It was seen that the debt crisis grew from 9% to 12.7% in 2009. The problem continued and the debt crisis further got intensified and rose to 13.6% in 2010. It was calculated that the debt stood at € 216 billion in 2010 (Boone & Johnson, 2010). The problem for Greece increased when the European Union was able to find the actual situation in hand and it affected other economies that were directly or indirectly related to Greece.

This resulted in the panic to spread beyond Greece to other countries present in the European Union as seen from the growth in GDP as shown below The above graph shows that the effect of the debt crisis was so strong that it resulted in the GDP to become negative which thereby had an effect on the GDP of other economies (Euro Stat, 2011).

The impact of this debt crisis was that the interest rate prevalent in Greece rose to new heights. This made investors especially foreign investment loose value as the interest component was very high. This is seen in the graph below The above graph shows that the fiscal deficit intensified so strongly in Greece that it resulted in the economy lose its growth rate and have a negative effect on the value of investors (Euro Stat, 2011). This made the world economies ponder on looking for a formula to bail out Greece. The concern of the fiscal deficit increased as International Monetary Fund (IMF) presented the view that the fiscal deficit could spread and have an effect on other economies due to the contagion effect (IMF, 2011).

This made IMF look and present before other economies the importance of bailing out Greece. This brings forward another problem that the European Union faces. The countries in the European Union have agreed into a contract that known as the European Financial Stability Facility which helps recovering countries get a bailout. This will expire in 2013 when a new rule European Stability Mechanism will work where banks and institutions which has helped economies come out of the bailout will lose the status of preferred creditors (IMF, 2011).

This will make it difficult for the economies that have helped in the bailout to recover their money from the bailed economies. This increases the pressure on the other economies as finding an effective way to bail out will increase the pressure on them. This has resulted in increasing pressure on IMF as they have been provided with the onus and burden to take a decision which helps to control financial debt from passing on to other economies. This has made IMF look towards ensuring that a mechanism is developed which will help to bail out Greece.

This has made the IMF look towards bailing out Greece along with the help of other countries in the European Union so that the fiscal deficit doesn’ t spread over to other countries in the world economies. This made the European Union and IMF look towards providing a second bailout of € 109 billion after € 110 billion already provided (AFP, 2011).

This has helped Greece and if the country follows a principle of transparency it will be able to ensure that the growth is ensured.


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