THE CRISIS OF GREECE THAT THREATENS EUROPE.

The Eurozone officially called the euro area, is a monetary union of 19 European Union (EU) member states that have adopted the euro as their common currency and sole legal tender.

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.

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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 3^rd 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 3^rd 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 5^th 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.