Greek Debt Crisis

The Greek debt crisis continues to occupy the news in the global financial news almost ten years after recognition. The crisis has been brewing for so long that a refresher course on what caused it might be fine in the first place.

The debt crisis arose from the fiscal wastage of the Greek government (“debauchery” is defined as wasteful and excessive spending). When GreekDr. Watsonand became the 10th member of the European Community on January 1, 1981, its economy and finances were in good shape, with a debt ratio of 28% and a budget deficit below 3% of GDP. But the situation deteriorated dramatically in the next 30 years.

In October 1981, the Panhellenic Socialist Movement (PASOK), a party founded by Andreas Papandreou in 1974, came to power on a populist platform. Over the next three decades, PASOK changed power with the New Democracy Party, which was also founded in 1974. In a constant effort to keep their voters happy, both parties conveyed a liberal welfare policy to their electorates, creating an inflated, inefficient and protectionist organization. economy.

For example, the salaries of employees in the public sector increased automatically every year, instead of being based on factors such as performance and productivity. Pensions were also generous. A Greek man with 35 years of government service could retire at the age of 58 and a Greek woman could retire as soon as he is under 50 years old. Perhaps the most notorious example of excessive generosity prevalence of 13th and 14th -Monthly payments to Greek workers. Employees were entitled to an additional monthly allowance in December to help with holiday expenses and also received half a month’s wages at Easter and half when they took their vacation.


Unbridled tax evasion

Unbridled tax evasion

As a result of the low productivity, the erosion of competitiveness and the unbridled tax evasion, the government had to resort to a huge debtor to keep the party going. The accession of GreekDr. Watsonand to the euro zone in January 2001 and the introduction of the euro made it much easier for the government to borrow. This was because the interest on Greek bonds and interest rates fell sharply because they converged with those of strong European Union (EU) members such as Germany. For example, the yield differential between ten-year Greek and German government bonds fell from more than 600 basis points in 1998 to around 50 basis points in 2001. As a result, the Greek economy increased with real GDP growth averaging 3.9% per year between 2001 and 2008 , the second fastest after Ireland in the euro zone.

But that growth came at a steep price, in the form of rising deficits and a budding debt. Watsonast. This was exacerbated by the fact that these measures apply to GreekDr. Watsonand had already exceeded the limits imposed by the EU Stability and Growth Pact when it was admitted to the euro zone. Thus, the Greek debt ratio was 103% in 2000, well above the maximum allowable level of 60% of the euro zone. The government deficit of GreekDr. Watsonand as a percentage of GDP was 3.7% in 2000, also above the 3% limit of the euro zone.

The mold rose shortly after the 2008-09 financial crisis, when investors and creditors focused on the huge government debt. Watsonast of the US and Europe. Failing a real possibility, investors began to demand much higher returns for sovereign debt issued by the PIIGS (Portugal, Ireland, Italy, Greek Dr. Watsonand and Spain) as compensation for this additional risk. Until then, the PIIGS debt risk was camouflaged by their wealthy neighbors in the north, such as Germany. By January 2012, the yield difference between ten-year Greek and German government bonds widened by no less than 3, 300 basis points, according to research by the Federal Reserve Bank of St. Louis.


While the Greek economy shrank in the wake of the crisis, the debt ratio rose, peaking at 180% in 2011. The last nail in the box came in 2009, when a new Greek government led by the son of Papandreou George in power and revealed that the budget deficit was 12.7%, more than double the figure previously revealed, which accelerated the debt crisis.

The Bottom Line

The Greek debt crisis has its origins in the fiscal wastage of previous governments, which proves that just like individuals, countries cannot afford to live far beyond their means. As a result, Greeks can accept jr. Watsonang live with stiff saving measures. According to the EU, a decision on debt relief for the country will be taken in 2018.