A debt crisis occurs when a country is unable to pay back or refinance its government debt without any external help. The Greek debt crisis started in 2009 when the government announced that it had previously misreported the data on public debt and deficit levels (Alderman et al., 2015). This event harshly and negatively affected Greece’s ability to borrow from the markets since mistrust of financial creditors led to very high borrowing rates for the country (Higgins & Klitgaard, 2011). Therefore, Greece was forced to ask for help from international organizations such as the International Monetary Fund and the EU agencies.
A few major causes of the Greek debt crisis could be identified. One of them is substantial structural deficit which means that the government spends more money on consumption than it receives from different revenue sources (e.g., tax collections) (Higgins & Klitgaard, 2011). Accumulated government deficit represents government debt since country’s government has to borrow from various sources to finance current spending. Greece was borrowing significant amounts of money during 2000s due to the above reason. The financial crisis of 2007–2008 significantly affected shipping and tourism which were very important for the Greek economy. Therefore, the ability of Greece to finance its consumption without resorting to borrowing was rather limited. Moreover, the above mentioned problems with statistical credibility have aggravated the situation. The process of budget planning was complicated due to fact that reported numbers for GDP growth, public deficit and debt were quite different from real figures. Thus, recognition of this discrepancy in statistical data by the Greek government led to unfortunate consequences for the country. Finally, corruption as well as tax evasion are very problematic in Greece (Greek Ministry of Finance, 2010). The country is in need of tax collections to repay loans and finance consumption. However, the government is not able to collect all the revenues that are supposed to be collected due to corrupted public agents and persistent tax evasion which is caused by a low social trust.
In conclusion, the Greek debt crisis is now one of the most problematic issues of the EU. Greece continues to borrow from international organizations such as the IMF since it is not able to borrow from the markets anymore.
The International Monetary Fund forces the Greek government to implement structural reforms and impose harsh austerity terms to ensure loan repayments which leads to public dissatisfaction by the government and even greater tax evasion. Greece missed a loan repayment to the IMF for the first time on June 30, 2015. The Greek debt crisis is a current phenomenon that should be analyzed in the dynamics of the upcoming events.
Alderman, L., Kanter, J., Yardley, J., Ewing, J., Kitsantonis, N., Daley, S., Russell, K., Higgins, A., & Eavis, P. (2015, July 16). Greece’s Debt Crisis Explained. The New York Times. Retrieved from http://www.nytimes.com/interactive/2015/business/international/greece-debt-crisis-euro.html
Greek Ministry of Finance. (2010). Update of the Hellenic Stability and Growth Programme Including an Updated Reform Programme. Retrieved from http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/20_scps/2009-10/01_programme/el_2010-01-15_sp_en.pdf
Higgins, M., & Klitgaard, T. (2011). Saving Imbalances and the Euro Area Sovereign Debt Crisis. Current Issues in Econmics and Finance, 17(5), 1–11.
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