Greeces Economic Crisis - Research Paper Example

?Finance Contents Finance Contents 2 Introduction 2 Research Papers on Greece’s Economic Crisis 3 Critiques of the Articles 5 Likely Impact on the Economy 6 Impact on US 6 Resolution of the Problem 6 Conclusion 7 Reference 7 Introduction The economy of Greece, which was a fastest growing one from the year 2000 to 2007, faced severe downturn from the late of 2009. The economy was flooded by the foreign funds in those years. Due to the inefficiency of the government to manage the huge debt and the economic downturn that affect the world economy, the burden of Greece surpasses €340 billion and this is expected to increase which is more than the economy of Greece. As a result the credit rating of Greece was downgraded and as well as it hampers the financial condition of the Euro zone mainly as well as the world. The paper is an attempt to research about the effect of the economic crisis of Greece in the world economy. Research Papers on Greece’s Economic Crisis In the research paper of Congressional Research Service the researchers have implied that Greece has not used the capital inflows for increasing the economy’s competitiveness and they also not maintained the European Union rule of accumulating the public debt. If Greece failed to pay the loan that is they become default then it can result a major economic crisis mainly in the European zone. U.S. economy also would feel the effect of the impact as the export of US would be affected because of the slow growth of the EU. The credit commitments, derivative contracts of US are huge ($34.1 billion) which means the current crisis and potential default would harm U.S. economy also (Nelson, Belkin and Mix, 2011, p.2-13). In his research paper Paul De Grauwe has opined that Euro zone authorities are also responsible for the current economic crisis which is become a Euro zone crisis rather than a Greek economic crisis. For the Euro zone crisis he also blamed the credit rating agencies as they are failed to forecast the crisis and when the crisis happened they overreact and as a result crisis become intense. It is also a cause that monetary union of Euro zone is not embedded with the political union. If some remedial measures are not taken then the other government bond markets of euro zone can affected and in turn the banking sector can get hampered (Grauwe, 2010, p. 2-3). In a research paper of Cardiff Business School the researcher has concluded that the macroeconomic fundamentals like the inflation, the exchange rate arise for Greece which is more than the European average (Arghyrou and Tsoukalas, 2010, p.5). In a research paper of Capitalvia the researcher has opined that the economic situation of Greece and U.S.A. is similar as both of them are depending on the foreign investors for funding of the budget deficit. For the crisis the value of Euro would come down and the fact is that United States’ trade with EU is the highest. As a result the investor would lose confidence on U.S. economy and U.S. economy also would come down. According to this research though the U.S. investors’ investment is low in Greek bonds, if Greece would default the investors would lose money and U.S. economy gets hampered (Capitalvia, 2010, p.11-12). According to a research paper published by Konrad Adenauer Stiftung for improving the economy of Greece the euro countries are providing bridge loan and the tight austerity program introduced in Greece. As the countries are providing loan in a lower rate it is also necessary for them to tight the monetary policy in their countries. As a result the growth would be slow in those countries. As the Euro slow down, as an effect the dollar would go down. Then U.S. also has to tighten its monetary policy and as a result the economy would get hampered (Wagner and Machnowski, 2010, p.2). In a research paper of CEPS the researchers have compared the economic crisis of Argentina in 2001 and the crisis of Greece in 2011. Argentina has defaulted as there was lack of support from the outside of the country. Argentina has tried restructuring but despite of that the country declared as default. In case of Greece there is the European Union for support Greece as the crisis would hamper the total EU. But for the restructuring a country needs political stability and social cohesion which was not there in case of Argentina and not as well in Greece (Alcidi, Giovannini and Gros, 2011, p. 3-4). In a research paper prepared by Polychroniou stated that Greece is the weakest link of EU due to its public corruption and inefficiency in the public sector which is the main cause of the current situation (Polychroniou, 2011, p.4). In a research paper prepared by Kouretas it was stated that the economic policies of Greek government is the main factor of the crisis associated with the representation of false financial data and corruption in the period and the EU countries also feel the effect of this if the proper remedial measures are not taken (Kouretas, 2010, p.394-399). Critiques of the Articles It is of no doubt that the economic policies of Greece government is the primary reason for the crisis but there were some other countries like Ireland, Portugal whose debt was also high than the average level. From the researcher point of view this can be the reason of the crisis, as investor loss interest in the currency Euro, and that in turn affect Greece whose budget deficit mainly financed by the foreign funds. In the articles the researchers has not taken the point with utter consideration. In his article Paul De Grauwe suggested that European Union countries should prevent the foreign credit rating agencies to rating the European countries but for the researcher point of view it is not acceptable as this would decrease the investor confidence as the credit rating agencies of Europe may be biased. Likely Impact on the Economy The economy of the European Union is facing problem due to the crisis. As the investor is losing their confidence in Euro, the value of the currency is going down. As a remedial measure the governments of the European countries are providing bridge loan and as a result the countries have to tighten the monetary policies. The governments are providing monetary package to the banks which are in problem due to the crisis of Greece. In turn the bank interests come down and the world economy is facing certain problem. Impact on US As the trade of U.S. is mainly with the European Union countries so the economic crisis of Greece would surely affect U.S. As the European countries are going to tighten their monetary policy for the economic crisis so certainly they would decrease their import and the main trading partner of Euro zone is U.S. The export would get hampered and the economic growth would not be much. As a result U.S. has to tighten its monetary policy and the overall economy of U.S. gets hampered. Resolution of the Problem For the short term remedial measures the European Union countries have to provide loan in low cost to Greece and for long term remedial measures the European zone can take some policies like introducing common Euro bonds. The share of the capital would be as per the share of the countries and the interest rate would be provided by the countries would be like they are providing the interest rate they are providing in the domestic market. For the short term measures Greece should restructure its debt using some process like debt swap. Conclusion As a result of ineffective economic policies and the recession of 2008-09 the debt burden of Greece increased and the economic crisis of Greece took place. From the research papers published the cause and effects of this crisis are cleared. Several remedial measures are taken by the European Union countries for Greece which would make up the situation in short term but for long term solution some innovative action should be taken by the EU. Reference Alcidi, C. Giovannini, A. and Gros, D. (2011). History Repeating Itself: From the Argentine Default to the Greek Tragedy? Available at: http://aei.pitt.edu/32159/1/CA,_AG_&_DG_Commentary_on_Argentina_%2B_Greece.pdf. [Accessed on: December 5, 2011]. Arghyrou, M. and Tsoukalas, J. (2010). The Greek Debt Crisis: Likely Causes, Mechanics and Outcomes. Available at: http://business.cardiff.ac.uk/sites/default/files/E2010_3.pdf. [Accessed on: December 5, 2011]. Capitalvia. (2010). Impact of Greece Crisis. Available at: http://www.capitalvia.com/admin/report-id/upload/160.pdf. [Accessed on: December 5, 2011]. Grauwe, P. (2010). The Greek Crisis and the Future of Eurozone. Available at: http://www.econ.kuleuven.be/ew/academic/intecon/Degrauwe/PDG-papers/Discussion_papers/EuroIntelligence-March-2010.pdf. [Accessed on: December 5, 2011]. Kouretas, G. (2010). The Greek Crisis: Causes and Implications. Available at: http://www.doiserbia.nb.rs/img/doi/1452-595X/2010/1452-595X1004391K.pdf. [Accessed on: December 5, 2011]. Nelson, R. Belkin, p. and Mix, D. (2011). Greece’s Debt Crisis: Overview, Policy, Responses and Implications. Available at: http://www.fas.org/sgp/crs/row/R41167.pdf. [Accessed on: December 2, 2011]. Polychroniou, C. (2011). An unblinking Glance at a National Catastrophe and the Potential Dissolution of the Eurozone: Greece’s Debt Crisis in Context. Available at: http://www.peri.umass.edu/fileadmin/pdf/research_brief/Greece_Research_Brief_Sept11.pdf. [Accessed on: December 5, 2011]. Wagner, N. and Machnowski, M. (2010). The Greek Financial Crisis: Fall-out in U.S. Available at: http://www.kas.de/wf/doc/kas_19012-1522-2-30.pdf?100310112434. [Accessed on: December 5, 2011]. Read More