Financial Crisis in Greece (2010-2013) Essay Example | Topics and Well Written Essays - 1750 words

Financial Crisis in Greece (2010-2013) - Essay ExamplePublic borrowing was undertaken heavily but grossly underreported leading to a debt-to-GDP proportionality much above the 3% target. By 2009-2010 it became clear to investors that Greece would non be able to pay its creditors because of a huge fiscal deficit and government debt. The ongoing global financial crisis worsened the economic view for the country and it appeared that the country would default on its loan payments. Causes of the Greek Financial Crisis According to Dellas and Tavlas (2013), one of the primary(prenominal) causes of the Greek debt crisis was the absence of an adjusting mechanism between money growth and credit growth. Historically, Greece has been running high cosmos debts compared to its GDP which went largely ignored by foreign investors. As a result, there was little inducing for the country to quash current and fiscal account deficits. Dellas and Tavlas (2013) explain that part of the reason was t he fact that Greece did not use the gold standard and its currency was pegged to the Euro. There was an over-reliance by investing and financing countries on the willingness and enthusiasm by Eurozone core countries including Germany to bailout the Greek sparing in case of a debt crisis. Throughout this period, the Greek economy continued to charge low interest rates in order to stimulate investment in the economy. As a result, the usual borrowing continued to increase pacing the way for a monarch butterfly debt crisis. In a paper presented at the Bank of Greece workshop, Manessiotis (2011) explains that poor fiscal discipline and lack of engagement in the economy were major factors that contributed to the crisis. These aspects of the economy should have received urgent priority following Greeces entry into the Eurozone. Fiscal deficit ran up to 5.3% of GDP after 2006 whereas the target was 3.0%. Moreover, in 2008 the situation worsened with revenue falling by 1.3% compared to GDP while expenditures exceeded GDP by 1.2%. These problems were further exacerbated by the multinational financial crisis that began in 2008. Conditions Imposed by IMF on Greece In 2010, it became nearly certain that Greece could not agree its sovereign debt payments and would inevitably default. The implications for the entire Eurozone region would have been severe. Hence, in May 2010, the Eurozone in collaboration with the supranational Monetary Fund (IMF) prepared a bailout package worth 110 billion of which the IMF was to contribute 30 billion to enable Greece to improve its economy and avoid defaulting on its debts (Financial Post, 2013). This bailout package was subject to certain conditions. Mainly, the conditions mandatory Greece to improve its fiscal performance and make the economy more competitive and open. The first condition impose by the IMF required Greece to machine austerity measures in order to control the fiscal deficit. It was required that Greece reduce it s public spending in order to narrow the fiscal deficit. Secondly, the fiscal debt problem was to be controlled by a policy of privatization of public assets. This measure would prevent the government from incurring additional debts to finance public organizations. By the end of 2015, the IMF required 50 billion worth of public assets to be privatized. Finally, the IMF required Greece to implement structural reforms in the economy to make it more business-friendly and competitive. This would stimulate business activity and help to fix the economy. However, the conditions have not been met satisfactorily