The Eurozone
consists of 19 countries:
1. Austria, 2. Belgium, 3. Cyprus, 4. Estonia, 5. Finland, 6. France, 7. Germany, 8. Greece, 9. Ireland, 10. Italy, 11. Latvia, 12. Lithuania, 13. Luxembourg, 14. Malta, 15. Netherlands, 16. Portugal, 17. Slovakia, 18. Slovenia, 19. Spain.
The Eurozone has a POPULATION of 33.46 crores
with a GDP of USD 10.64 trillion.
Other EU states (except for Denmark and the United Kingdom) are obliged
to join once they meet the criteria to do so.
As
against the mighty Eurozone, Greece is a small nation in Europe with a POPULATION
of just 1.08 crores and with a GDP of just 207 billion USD.
This
means Greece accounts for only 3.2% of Eurozones POPULATION and 2% of its GDP.
Greece became a member of the European Union on 1 January
1981, ushering in a period of sustained growth. Widespread investments in
industrial enterprises and heavy infrastructure, as well as funds from the
European Union and growing revenues from tourism, shipping and a fast-growing
service sector raised the country's standard of living to unprecedented levels.
The country adopted the Euro in 2001.
However,
presently Greece is creating a crisis and is putting pressure on the Eurozone. In the year 2010 Greece had a deficit of 15.4% of its
GDP which is phenomenal. The public debt was estimated at 126.8% of its GDP
which is crushing. The current deficit and the public debt of Greece are much
higher.
The case of the Greek
crisis has been a good example of how bad management of public finances can
lead to an economic catastrophe. Greece has a long history of
fiscal trouble, having spent much of the past two decades in
default and economical inconsistency. Both fiscal and governmental
corruption and contagious tax evasion lead its economy to become unstable and now
it threatens the entire Eurozone dangerously. What is the problem of Greece?
Many factors contributed to
the Greek economic crisis during the last decade, each of them playing an important role and have varying levels of significance. In particular, the Greek economic crisis can be attributed to some
primary causes 1. The Eurozone, 2. Mass tax evasion,3. Corruption of the Government,
4. High Public Spending and 5. Inefficient Bureaucracy.
Greece was one of the weak
members of the European Union and when the Global Financial Crisis broke out
Greece is one of the most affected states in the European Union. The two
mainstays of Greek economy, Tourism and Shipping suffered a reverse and the economy registered
a negative growth of 15% during the year 2009.
Underlying
cause of the situation is that, in order to secure electoral support, Greek
politicians have traditionally viewed the provision of public sector jobs
and benefits as an important way to grant favours. In order to
do that, Greece continued to borrow heavily from international capital markets
to finance public sector jobs, pensions and other social benefits. Government expenditure has therefore been extremely
high, much higher than government revenues. This created a huge budget deficit
problems. As deficits and the country’s debt burden
grew, the governments just kept on borrowing.
In
early 2010, it was revealed that through the assistance of Goldman Sachs, JPMorgan Chase and numerous other banks, financial products were
developed which enabled the governments of Greece, Italy and many other
European countries to hide their borrowing. Dozens
of similar agreements were concluded across Europe whereby banks supplied cash
in advance in exchange for future payments by the governments involved; in
turn, the liabilities of the involved countries were "kept off the
books" and were not revealed.
While
government spending and borrowing increased over time, tax revenues which is
the main sources of the government, weakened due to widespread tax evasion.
The other major causes behind the crisis were week
co-ordination and organization in budget management process and inefficient
bureaucracy. The implementation of financial reforms and policies are
inappropriate, and the institutional, legislative and regulatory framework of Greece is unfavorable and complicated.
There are simply too many laws, too
many policies and too any overlapping control mechanisms that led
to a systems failure.
As a consequence, there was a crisis in international
confidence in Greece's ability to repay its sovereign debt. To avert such a
default, in May 2010 the other Eurozone countries, and the IMF, agreed to a
rescue package which involved giving Greece an immediate USD 65 billion in
loans, with more funds to follow, totalling to USD 150
billion. To secure the funding, Greece was required to adopt harsh
austerity measures to bring its deficit under control.
In
2011, it became apparent that the bail-out would be insufficient and a second
bail-out amounting to USD 170 billion was agreed in 2012, subject to strict
conditions, including financial reforms and further austerity measures.
The economic health
of Greece again deteriorated now and it is seeking a 3rd bailout
form Eurozone and has threatened to pull out form the grouping. This is a case
of utter mis management of the economy. Spend money indiscriminately and expect
other countries to foot the bill. Eurozone is being pressurized as they believe
that if Greece pulls out then that would be the end of a single monetary
currency for Europe. Moreover, the funding given to Greece already would also
go down the drain. So Eurozone is ready to give another bailout but Greece
refuses to cut its indiscriminate Government spending which is a pre condition
for the 3rd bailout.
Yesterday Greece
became a defaulter as it failed to pay the IMF loan repayment of around 1.5
billion Euro. The President is holding a referendum on the 5th of
July as whether Greece wants to continue in the Eurozone. If it votes to go out
of the Eurozone then the biggest loser would be Greece. The President wants a 2
year loan package from the Eurozone without any pre conditions which is
ridiculous. 2 years later they can always ask for another loan. I personally
feel such countries should not be helped as they are surviving on someone
else’s money.
