Greece Economy After Euro Crisis
NAME: HARSHITA AGRAWAL
CLASS: FYBA ‘C’
ROLL NO.: 325
Greece is a service sector led economy, which contributes 85%. Industry (12%) and agriculture (3%) are relatively very small. The main industries include tourism and merchant shipping which are more global in nature.
Greece as an economy was doing very well until the global economy crashed in 2008 due to “Global Financial Crisis (GFC)”. During the period of 2001- 2007, Greece was one of the high growth economies in the European Union (EU) with nominal Gross Domestic Product (GDP) growing at an average rate of around 7% per annum and real GDP growing at a rate of 4.2% per annum which was more than the growth in EU. The GFC was a result of …show more content…
Easy access to capital lowered the interest rates which led to increased spending by private firms and the governments. A few countries like Greece, Portugal and Spain kept spending on unproductive areas like social benefits such as health and medical, pensions and other allowances to its employees and on defence. While higher spending by the governments and the private sector led to higher economic growth during 2000-2007, it also increased the debt levels in those countries due to the wrong policies of the governments.
A few countries like Italy and Greece circumvented the deficit and debt limits imposed by EU and allowed their Debt to GDP to remain close to 100% during the period of 2000- 2007 by using some modern day financial instruments with the help of investment banks in the USA and Europe. While the going was good, the successive governments did not take enough policy measures to create economic resilience.
As the GFC exposed the fiscal weakness of high debt nations, financing of budget deficits and repayment of debt became extremely difficult. Risk premiums for these countries shot up and interest rates kept increasing, taking them on the verge of sovereign default. Hence, they had to seek the help from institutions like EU, ECB (European Commercial Bank) and the IMF. As we can see from Table 2 above, the PIIGS countries’, France, Germany and the