The way Greece has engulfed itself in debt crisis is seriously a matter to ponder over. The Mediterranean nation might have initiated several austerity measures in recent times, but the lavishness of the Greek citizens backed up by previous regimes over the last few decades, is primarily responsible for the fiscal problems that the country is facing today.
According to an estimate, the Greek government has a debt burden of around $500 billion as of now. Everything was alright up to 2009, but since then the economic scenario of the nation started taking dramatic U turn.
How It All Began?
In 2009, amidst global recession, Greece announced that it had understated its deficit figures for the last so many years. This created panic among the global investors and creditors. Even the residents of the country were astonished too. The country was on the verge of becoming bankrupt when the IMF, EC (European Commission) and ECB (European Central bank) lent $264 billion to the debt-ridden country. The package, unfortunately, came at the stringent terms of austerity measures and forced Greece to curtail its public expenditure.
The immediate consequence of the government’s austerity measures in 2009-2010 led to rapid unemployment. This incited the public and forced them to launch nationwide violent protests against the Papandreou government of that time. From 2010 to 2011 Athens witnessed a number of austerity packages and reforms passed by the parliament.
However, People were deeply angered at these reforms – aimed at lowering the salaries of workers, increasing the VAT (Value added taxes), curtailment of fresh recruitment and others. This led to violent protests and riots in the streets of Athens. It was earlier this year that anti-austerity party Syriza came to power and Alexis Tsipras was sworn in as the prime minister of the country. He vowed to fight back the austerity, but eventually failed to improve the economic scenario of the nation.
The Past and Future of Greece & Solutions
Although the nation believes in democracy yet its citizens were lured into various welfare schemes in 1974 election. The socialist government took charge of the administration and added a number of welfare measures. This includes increased expenditure toward healthcare, hiring a lot of public staff, increasing the salaries of the public servant, etc.
However, revenue generated from taxation from the Greek citizens was not enough to meet these expenses. The Government resorted to borrowing from outside financial institutions including the international ones. The citizens were kept in the dark and the actual fiscal deficit of the country was not made public. The successive government presented budget year-after-year but kept understating the fiscal deficit for the reasons best known to them. This has what escalated the Greek debt to such an extent where the country stands on the verge of becoming bankrupt.
The country needs to fight back the current debt crisis and start bringing back the economy on the right track in a slow but steady manner. But it can’t happen overnight. It will take time at least 1 decade or more. Attracting more and more foreign investment to the nation and do away with unnecessary stringent rules and regulation for investors will certainly create a favorable investment climate in Greece and ensure its long term prosperity.
Government can also raise taxes to enhance its revenue. Another option – though sounds impractical, is to return to Drachma era. Greek government can then manage financial management of the country as per the prevailing economic condition and global scenario. In other words, the nation will then have the discretion to control money supply in order to tackle the intricacies of inflation and deflation throughout Greece.