The Greek Debt Crisis

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TABLE OF CONTENTS

CHAPTER: GREEK DEBT CRISES1

Introduction1

Background3

Outbreak of the Current Crisis4

Causes6

Domestic factors7

High government spending7

Low revenue8

Structural policies and declining international competitiveness8

International factors9

Low interest rate and increased access to capital9

Issues with EU rules enforcement10

The Theory of the Government12

The Theory of Taxation18

Actions taken to deal with Greece fiscal position24

Greek domestic policy responses24

Structural reforms25

Financial Assistance from the IMF27

Should Greece default?28

Offer a solution to the Greek debt crisis?29

Conclusion31

REFERENCES32

CHAPTER: GREEK DEBT CRISES

Introduction

The history shows that the government defaults results in the financial crises and debt obligations. Due to financial crises, the countries suffer economic downturns, low government revenues, trade and budget deficits. All these factors contribute to debt crises. Although the world economy is recovering from the global economic and financial crises, some experts are expecting another wave of crises to hit the world which will be called sovereign debt crises.

Greece is facing sovereign debt crisis these days. The main reason behind these crises is huge volume of debt acquired by the Greek government in past ten years. Ten years before, the capital and financial market was very liquid and countries acquired debts easily. All the debts owed by the Greece are at maturity state. The experts are of opinion that Greece won't be able to meet its financial obligation because the capital market is very liquid. The economist and financial experts further say that Greece can default because of its current crises and economic downturn. The Greek government has introduced many measures to overcome the crises. These measures include asking the European Union member states for financial aid and support. The Greece has also asked for financial support from International Monetary Fund.

Due to Greece debt crises, experts have raised lot of questions on the euro merits and these questions have affected the decisions of countries which wanted to integrate with EU. The experts have also raised their objections against the associated problems with the current fiscal and monetary policy of Greece. Although Greece debt crises affected the whole world economy but United States is the worst affected and the reasons is that the EU and the United States have very strong economic ties and the debt crises have affected the US economic relations with the whole EU.

The Greece economic conditions have been discussed in many congressional hearings in the last two years and one of the hearing scheduled by financial service house committee in 2010 discussed the Greece debt crises implication on the credit default. The Greece Prime Minister George Papandreou also discussed the Greece debt crises with the congressional leaders during a visit to US in March. The author of this research will put light on the background, major causes and implications of the Greece debt crises. This research paper will also focus on the international and domestic factors responsible for the Greece debt crises, what were the actions taken by the IMF and EU member for these crises and how these debt crises affected the whole world.

Background

Greece government borrowed huge volume of capital from the world to support the trade and budget ...