Greece
Economy Crisis
A few years back, the
world economy witnessed a decline in economic activities causing a serious
economic crisis. Before the world economy went into recession, Greece had an
economy that was growing at a very fast rate. From early 2003 up to 2007,
Greece’s Gross Domestic Product increased by about 4%. In the same period, the
country recorded a decline in the rate of the unemployment which stood at 8.3%
in 2007. However, Greece experienced an economic crisis in 2008 where the country’s
economic growth reduced to 2%. In the
following year, the situation became worse forcing the country to go into
recession. Greece’s economic crisis had severe effects on many manufacturing
industries including those dealing with consumer goods, aircraft, automobiles,
and building materials. It also became extremely difficult for the country to
maintain its airlines and other logistics used to control a large part of
Greece’s economy.
Greece’s economic
crisis can be linked to a number of causes which include the following. The
main cause of Greece’s economic crisis was tightening of various credit
conditions, and the failure by Athens to come up with appropriate measures for
dealing with the increasing budget deficit. The increase in budget deficit was
caused by a reduction of government revenues as well as an increase in
government spending. Greece failed to honor and respect the European Growth and
Stability Pact that was against a budget deficit that exceeds 3% of the total
Gross Domestic Product. When Greece experienced economic crisis, the budget
deficit had reached close to 12.7% of Gross Domestic Product Secondly, the
Greece economic crisis was caused by increased domestic and foreign debts, and
chronic imbalances. The effect of these situations is that Greece was placed at
a very disadvantageous position in regard to the value spent during the process
of servicing the debt. The increased indebtedness by the Greece government
posed very serious omission risks due to the various variations in the rates of
exchange. It is worthy to mention that the economic crisis in Greece had a
negative impact on the country especially in its financial system, investment,
banks, and unemployment. Another cause of the Greek economic crisis was the
lack of key reforms within the product market. The country lacked effective
mechanisms for encouraging entry to various professions and industries. This
made it difficult for Greece to promote investment in the country.
Possible solutions to
the Greece economy crisis may include the following: to start with, the
government should establish appropriate measures for increasing investor
confidence so that they can be motivated to engage in investments in the
country. The government are should not result in reducing its level of spending
since this practice can easily slow down the process of economic recovery. In
situations where the government finds it difficult to increase its spending
level as a way of attracting investors it should consider developing other
incentives that can be used with other economic policies to improve the
economy. However the government should not overuse incentives in offsetting an
economy during recession. This is because the practice can turn out to be very
dangerous especially in circumstances where the economy is capable by itself.
In case such a situation is observed, the banks’ rates of interest should be
increased in order to counteract the effects associated with stimulus packages.
Another solution to the economic crisis would
be to make the countr economy more competitive. To achieve this, the government
should be in a position to provide a strong and stable institutional framework.
This helps to promote entrepreneurship and investment. While undertaking this
process, it is important to abolish ineffective regulations and come up with
new and effective regulations. An all-inclusive regulatory reform can offer
significant contribution in raising the competitiveness of the economy in
Greece. Such a move also helps to reverse the negative effects caused by the
crisis to individuals’ incomes. Thirdly, key reforms should be carried out in
the product market. This should involve enactment of regulations that
facilitate entry of both professionals and industries into the market. It is
also important to check on monopoly practices while strengthening market
competition. Lastly the government should abolish regulations that provide
employers with power to terminate employees from work. This would be very
advantageous to the workers and eventually increase investment level in the
country.
From above discussion, it is observed that a
crisis in an economy can lead to serious consequences in the affected country.
For the case of Greece, the economy crisis witnessed in early 2008 had a lot of
negative effects that included reduced economic growth and increase in the
unemployment rate. Based on the fact that any other country can experience a
similar crisis, it is important for countries to establish proper mechanisms
for preventing the occurrence of an
economic crisis. For example, a government should develop effective ways of
attracting investors into the country to help increase the level of investment.
It is also important for the government to control its level of budget deficit.
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