Economic Crisis of Greece History and Speculations - 1375 Words

Economic Crisis of Greece: History and Speculations (Research Paper Sample) Content: (Word count: 1189)NameInstructorCourseDate of SubmissionEconomic Crisis of Greece: History and SpeculationsGreece is heavily indebted to its international creditors and is being looked upon by Europeà ¢Ã¢â€š ¬s economic giants as a "problem that wonà ¢Ã¢â€š ¬t go awayà ¢Ã¢â€š ¬Ã‚ . Indeed, even after passing a vote by which the Greek people agreed to the terms of the European Central Bank, the country is still in economic crisis. Things may improve, and the country will go back to its former glory, but this will not happen overnight. According to the Business Dictionary, an economic crisis is "a situation in which the economy of a country experiences a sudden downturn brought on by a financial crisis." Although the term "financial crisis" is often used interchangeably with "economic crisisà ¢Ã¢â€š ¬Ã‚ , the two words bear a slight difference in meaning. A financial crisis is a situation where there are problems in the banking sector and the stock market. Continu ed persistence of these problems ultimately results in an economic crisis. This paper will objectively look at the economic crisis in Greece, how it started and analyze propositions brought forward by economic analysts and major players in the European Union. Further, this paper will put forward a fair representation of the positive and negative aspects of different positions and primary figures involved in the crisis.As Sachs observed concerning Greece, "financial crisis is caused by a countryà ¢Ã¢â€š ¬s indebtednessà ¢Ã¢â€š ¬" (para.2). He goes further and attributes the situation to poor judgment, corruption, over optimism among other issues. The history of Greeceà ¢Ã¢â€š ¬s economic nightmare started with the world financial crisis in 2007. The world financial crisis was itself brought by the collapse of Lehman Brothers, a sprawling global bank à ¢Ã¢â€š ¬" The Economist (para.1). The article goes on to lay blame on the worldà ¢Ã¢â€š ¬s central banks, the general culture tol erated by banks where they lent in excess. The fact that the worldà ¢Ã¢â€š ¬s economic giants had enjoyed low inflation rates and steadily increasing growth in GDP made central banks complacent, and they failed to exercise caution in dealing with securities. These securities turned out to be shady, and in the end the banks could not recover the full amount that they lent out on these securities. The problem naturally flows to the smaller banks. Allison found that "smaller banks follow the same practice because if they do not, they end up with a lower return on equity than their competitors" (p.23) Greece had been in financial turmoil long before the world financial crisis. The New York Times observes that it [Greece] had long been reporting false financial figures concerning its debt (para.10). In 2010, Greece was heading toward bankruptcy and that is when the world began to understand the full severity of the economic situation. An initial sum of 240 billion Euros was lent out to the country, coupled with tough regulations. Creditors demanded that the Greek government employ austerity measures, essentially cutting back on its spending.Some propositions have been put forward to help bring Greece back to economic stability. Among these are "a leave of absence" (Feldstein, para.4) Feldstein proposes that Greece should exit the Eurozone for a while and have its currency. He further elaborates that if the Greek currency depreciates against the Euro, Greeks will be forced to spend their money on locally manufactured goods because they would be cheaper. Depreciation of the Greek currency against the Euro would revitalize the local economy and Greece will be back on its feet. All this will only work if the Greek currency loses its value against the Euro. However, if the local currency in Greece follows the opposite trend and appreciates against the Euro, this will encourage Greeks to spend more money on goods and services outside their country. The local manufacturi ng sector will be hurt as the citizens prefer exports. The money is going would be lost to other economies in the Eurozone and Greece will slowly go back to an economic crisis. Feldsteinà ¢Ã¢â€š ¬s proposition heavily relies on the failure of Greeceà ¢Ã¢â€š ¬s currency which cannot be guaranteed. A second suggestion would be to have excesses remain at 1 percent (Stiglitz, para.5). He observes that Greekà ¢Ã¢â€š ¬s creditors have run the country down by imposing strict austerity measures and taking away whatever little the country makes. The people of Greece have a paltry sum to share out among themselves, an amount too little to make any positive economic impact. In his view, structural reforms should be discussed by the countryà ¢Ã¢â€š ¬s lawmakers only after the achievement of sustained growth for at least two years. Sustained growth should see a drop in the number of unemployed youth and continual growth in the countryà ¢Ã¢â€š ¬s GDP.The future of Greeceà ¢Ã¢â€š ¬s economic stability lies solely on the measures its government chooses to undertake. Too much austerity will cripple the economy as there would be no government spending to encourage growth. The private sector will find it hard to do business because the government would have adopted a strict tax regime in which no incentives would be made available. Unemployment will soar to levels never seen before, and crime will be the order of the day. In my view, the Greek government can only avoid all these negative outcomes by adopting the measures used by the US to get out of the financial crisis. The only ...