Greece and their struggling path

The global economy has experienced slow growth since the U.S. financial crisis of 2007-2008, which has exposed the unsustainable fiscal policies of countries in Europe and around the globe, thinking that the commodity boom and income revenue where permanent. In the other hand Greece, spent heartily for years and failed to undertaken fiscal reform, was one of the first to feel the pinch of weaker growth. When growth slows down then the tax revenues of a country will also slowdown, which makes high budget deficits unsustainable. The result was that the new Prime Minister George Papandreou, in late 2009, was forced to announce that previous governments had failed to reveal the size of the nation’s deficits. In truth, Greece’s debts were so large that they actually exceed the size of the nation’s entire economy, and the country could no longer hide the problem. When Greece couldn’t hide the problem that they are facing with, investors responded by demanding higher yields on Greece’s bonds, which raised the cost of the country’s debt burden and necessitated a series of bailouts by the European Union and European Central Bank (ECB).

The European Union has taken some action to address the situation. The primary course of action has been a series of bailouts for Europe’s troubled economies. In spring, 2010, when the European Union and International Monetary Fund disbursed 110 billion euro’s to Greece. Greece required a second bailout in mid-2011, which was worth about $157 billion. On March 9, 2012, Greece and its creditors agreed to a debt restructuring that set the stage for another round of bailout funds. The name for this program was the Long Term Refinancing Operation, or LTRO. Numerous financial institutions had debt coming due in 2012, causing them to hold on to their reserves rather than extend loans. Slower loan growth, in turn, could weigh on economic growth and make the crisis worse.

Greece’s irresponsible fiscal behaviour leading up to the Great Recession caused its current problems, not the recession itself. The recession simply made abundantly transparent what insiders knew, but were unwilling to accept. Greece’s fiscal behaviour was unsustainable. Greece is now at a point where it only makes economic sense that they either leave voluntarily or have the European Union expel them. One consequence of a Euro zone departure will be real hardship for the people of Greece. Their short-term expectations of lifestyle and affluence will be significantly reduced. And although the spending power of their money will be dramatically lower than the euros, their competitiveness will dramatically improve as a result of this devaluation. There will be increasing demand for Greek goods and services, particularly in industries like tourism, and gradually they will earn back their affluence.


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