The Greek Debt Crisis Of 2010-2014, Its Global Impact And Sustainability By Analysing Gdp And Real Interest Rate

before had the Eurozone been presented with such a large financial crisis that could undermine

The Eurozone is facing a serious sovereign debt crisis. Several Eurozone member countries have high, potentially unsustainable levels of public debt. Three—Greece, Ireland, and Portugal—have borrowed money from other European countries and the International Monetary Fund (IMF) in order to avoid default. With the largest public debt and one of the largest budget deficits in the Eurozone, Greece is at the centre of the crisis. The crisis is a continuing interest to Congress due to the strong economic and political ties between the United States and Europe.

As Europe slipped into recession in 2009, a problem that started in the banks began to affect governments more and more, as markets worried that some countries could not afford to rescue banks in trouble. Investors began to look more closely at the finances of governments. Greece came under particular scrutiny because its economy was in and successive governments had racked up debts nearly twice the size of the economy. The threat of bank failures meant that the health of government finances became more important than ever. Governments that had grown accustomed to borrowing large amounts each year to finance their budgets and that had accumulated massive debts in the process suddenly found markets less willing to keep lending to them. Hence, what had once begun as a banking crisis became a sovereign debt crisis.

Excessive government debts were the cause of the Euro crisis due to countries ‘living beyond their means’ according to the Germany’s ministry of finance. These increased debt levels were largely caused by huge bailout packages provided to the financial sector during the 2009 financial crisis and the global economic slowdown thereafter. The average public deficit in the Eurozone was only 0.7 percent of GDP in 2007 but by 2010, it had jumped to over 6 percent. The Eurozone’s public debt also rose from 66 to 85 percent of GDP in 2010.

The economic crisis within the Eurozone has grown rapidly for the past five years, and members of the European Union struggle to enact any effective measures to halt or reverse its effects. Perceived booms in the housing markets were really only bubbles which popped and sent entire national economies spiraling downward into recession. Nations of the Eurozone have accumulated massive public debts, far larger than the 60% of GDP maximum specified in the Stability and Growth Pact. In 2011, Greece’s debt reached an unbelievable 170.3% of its GDP. Economic punishments are the specified consequences for violating this regulation, but the pact has not been adequately or consistently enforced. So many states have fallen past the debt limit that

According to the CIA’s studies, the Greek economic system averaged increase of approximately 4% in step with year between 2003 and 2007, however the financial system went into recession in 2009 due to the world financial crisis, tightening credit conditions, and Greece' inability to address a developing budget deficit. By 2013, the financial

To assess the situation, the author presented an overview regarding the crisis. Then the author discusses how the crisis spanned out and the problems associated with the crisis that the European Union faces in light of this crisis. The author also evaluates the crisis by discussing the ways to control this issue.

The Greece debt problem arose in the year 2009. It is considered as the first sovereign debt problem that has ever arisen in the Eurozone. The main contributing factors to this problem included the weak Greece economy, the long period of Recession and the crisis in confidence among its governmental leaders. Later that year the country was believed to be in a situation where it was not able to meet its debt obligations. This was after the country announced that it had been understating its deficit figures for many years. This action saw Greece shut out from borrowing any funds in the financial market. This forced the International Monetary Fund, the European Commission and the European Central Bank to be able to issue the first and second bailouts in Greece. Greece, however, failed to be able to repay back their debts due to many social, political and economic factors that surrounded the country. The country was once again in a state of bankruptcy. The Eurozone had to be able to intervene to be able to help the country and on July 13, 2015, the country was issued the third bailout but on very strict and precise conditions.

The European sovereign debt crisis, which made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties (Haidar, Jamal Ibrahim, 2012), had already badly hurt the economies in “PIIGS”, Portugal, Ireland, Italy, Greece and Spain. This financial contagion continues to spread throughout the euro area, and becomes a dangerous threat not only to European economy, but also to global economy.

The global financial crisis has caused a massive deterioration in public finances in the euro area. The 2009 recession severely curtailed public revenues and weighed heavily on the welfare state. In addition, states have boarded on bank bailouts and costly stimulus packages. In 2010, no country belonging to the euro area was able to comply with the Stability and Growth Pact (SGP). Public debt in the euro area increased from 65% to 85% of GDP between 2007 and 2010.

In 2008 Greece was not influenced by the crisis but later in 2009 the country fell into recession and the financial markets exerted pressure, which made the economy being vulnerable. At the beginning of the sovereign debt crisis, the budget deficit of Greece was erected at 13.6% from 12.7% (Eurostat, Euroindicators, 22/2010, 22 April 2010) and the external debt at 127% of the GDP (Eurostat, Euroindicators, 60/2011, 26 April 2011). In order to to deter a default on its sovereign debts, the government of Greece agreed on a loan by Eurozone states and the International Monetary Fund (IMF). The loan agreement was 80 billion € from Eurozone states and 30 billion € from IMF. The agreement was between the Greek government and the European Commission (EC), the European Central Bank (ECB) and IMF (the ‘Troika’), in which they agreed that the EC, ECB and IMF had to prepare a program for Greek economy. The Ministry of Finance in cooperation with the ‘Troika’ prepared a program called ‘Memorandum of economic Policy and Financial Policies; (MEFP) and the ‘Memorandum on Specific Economic Policy Conditionality’ (MSEPC)(The Memoranda). The MEFP had to do with the fiscal reformations and income policies that Greece had to undertake. The Memoranda was connected with the Act 3845/2010 on ‘Measures for the Implementation of the support mechanism for the Greek economy by the Eurozone Member states and the International Monetary Fund’ and the Greek Parliament enacted into law on 5 May 2010. The

The Greek government-debt crisis has seldom seen a break from the public eye since its first bailout loan in 2010. With a sweeping change in political standing, the question now looms as to whether the newly elected Prime Minister, Alexis Tsipras should pull the plug on Greece’s membership in the Eurozone. In the most part, International financial and political institutions such as the International Monetary Fund (IMF) and the European Union (EU) are helping economic recovery in Greece. Through a variety of implemented fiscal and social measures, Greece will ultimately be spared from a detrimental Grexit, seeing a sound economic outcome through means of democratic legitimacy.

In 2010, the IMF, along with European Central Bank and the then-sixteen members of the European Union, drew up an economic bailout package in the form of €110 billion loan to ‘rescue’ Greece from “sovereign default”—i.e. Greece’s inability to pay back its existent debt. This action was a response to the growing fear of default from (mostly private) investors around the time of the Great Recession and resultant European debt

This section aims to discuss the root of two aspects of the Greek debt crisis.

National debt is a problem that can inflict any country including the developed countries. Almost all countries go into budget deficit one way or the other and end up borrowing money. The most direct effect of the government debt is to place a burden on future generations of taxpayers. When these debts and accumulated interest come due, future taxpayers will face a difficult choice. Inheriting such a large debt cannot help but lower the living standard of future generations. In the 1960s and 1970 some developing countries were encouraged to borrow money to service old debts and also to finance development projects in their country like infrastructure. This has been necessitated by the