What’s Up With Greece?(Part-1)

Recently, a lot about Greece crisis, Greece bailout, Greece Referendum has been flooding the news headlines. So when I went to meet my friend at our 'adda' or I would say our favourite coffee shop she popped up with this question "What’s up with Greece?" a moment after she read on her cell phone 'Greeks overwhelmingly vote ‘no’ in rejection of austerity’ while surfing through the news. To which I replied "A lot much lately".

"Could you elaborate?" she asked. So, I began.

"Back in 2002 Greece’s entry to the Euro Zone was approved.[ A little fact: It is now known that Greece didn’t actually qualify for entrance to the bloc. A financial audit in 2004 showed that the government budget deficit in 1999 was actually marginally above the 3% limit for admittance.].

Though during the early years of Euro zone the Greece economy really did boom but by 2009 the budget deficit figures showed a deficit of 6% which was twice of that in 1999."

She interjected popping up with yet another question while I had just started answering the first "Why is Greece so mired in crisis?". I was coming to this a little later but now that she had asked I winded it up in points quickly.

"See a lot of reasons can be attributed.

1.It’s public sector is bloated and marred by corruption.

2. Of course the fact that they had dodged the figures to get into the euro zone proved to be a problem for the country after it was known.

3. The euro zone itself is a problem. Even though, the countries in this zone share a common currency they have different tax systems and payment policies. This implies that even though Greek products aren’t as economically competitive as Germans, Greece can’t lower the value of its currency to make its products cheaper abroad to stimulate exports."

These were some reasons I stated but then I remembered an article where I had read about the deeper origins of Greek Crisis. Since I had bookmarked it, I was able to easily locate it and chose to read out to her the part relevant to our discussion. It’s as follows:-

"Once the Greeks joined the Euro in 2002, they could borrow at very cheap rates given that they were now borrowing under the continent’s implicit guarantee, and they dramatically overborrowed.

“But given that there was high growth, no one was really worried about it.”, says Matthias Matthijs, a professor at Johns Hopkins University SAIS.

Between 1997 and 2007, Greece’s annual income growth per person was 3.8 percent- the second fastest rate in Europe.

But there were weaknesses within(some of which I mentioned in points above). The booming economy of Greece and other countries such as Ireland and Spain caused prices to rise, and these countries gave generous pay prices to their workers, which made their exports more expensive. That made the countries less competitive, but since they were growing too fast it didn’t matter too much.

Then the financial crises hit. As economic growth slowed, these countries’ competitive weakness and unsustainable debt loads suddenly became glaringly obvious.

“It’s when the tide out goes out that you see who’s swimming naked.” Matthijs says. “

I finished reading. This actually adduced the reasons for the crisis quite well and I could see that she seemed convinced with the reasons.

Her phone rang and i waited for her to finish the call.

(to be contd..)