The Current Situation With the Economy of Greece - Admission/Application Essay Example

Greece boundary stretches from the Aegean Sea to the borders of the Mediterranean sea in southern Europe. The country mainly consists of the mountain ranges that extend into the sea and projects as peninsulas or island chains. The climate varies from dry summers to wet winters thus making Greece an attractive tourist attraction centre. The country population exceeds 10 million people in which the governing method is a parliamentary democracy. The citizen through a voting system elects Three hundred people. Those elected individuals from the parliament where they execute the legislative duties of the government. The executive leader of the government is the prime minister who oversees all the departments. Members of parliament directly elect president who rules for five years (Theocharis). Even though the president of the country has got limited powers, as most powers is vested in the government. His principal duty includes formally appointing prime minister, as well as appointing or dismissing other government members. He represents the country in its relation to other states. The general election is usually held after an interval of four years unless the parliament gets dissolved. The electorate is all the Greek citizens who have attained the age of 18 years. After every general election, the government has to appear before the parliament and request for a vote of confidence from parliamentarians. The judiciary consists of supreme judicial court as well as the supreme tribunal that is formed by the judges appointed by the president after consulting the judicial council. The legal structure relies on a codified roman law that is divided into administrative, civil and criminal (Kousis). Greece economy is the 15th largest economy in the 27- European state union as well as being the 34th largest state in the entire world by a nominal gross domestic product. The economy of Greece is based on the service sector that contributes 85%, industry contributes 12%, and the agricultural sector contributes only 3% of the total economic output. The most significant economic industry in the country are the merchant shipping and tourism. Studies have shown that Greece is the 7th most visited state in the European union and is ranked 16th in the entire world. Greece boasts of the largest merchant maritime shipping in the world since it covers up to 16% of the worlds capacity. Greece became a member of the European Union in 1982 and January 2002, and it adopted the euro to become its official currency by replacing drachma. The country is a member of the several agencies including International monetary fund among other financial organizations (Alogoskoufis). The country is involved in several business sectors thus; it is involved significantly in export and imports of the product. The state exports food, beverages, manufactured goods, textile and other petroleum products to countries within Europe and far beyond. Such trading countries include Cyprus, Germany, china, USA among others that contributes a staggering 28 billion dollars annually. On the other hand, the country is involved in importing products worth 66 billion dollars that consist greatly of machines, chemicals and other transport equipments. Most of the imports are from Germany, Russia, china USA Belgium among other trading country states. The country has several industries that the manufacture, assemble and recycle products. Some of the industries include the textile, food and tobacco processing, mining, chemicals as well as tourism. Although the economy of the country has improved considerably in the near decades due to the steadfast industrial development and the tourism sector, currently Greece faces a colossus severe economic crisis. The country is in a debt crisis and faces several challenges that include the slow rate of development, as well as the massive unemployment. The country has a capitalist type of economy, which means that its economic system is composed of the private ownership of capital. Historically, the financial crisis always has a sharp recession, widening government deficits, increases high levels of debt and pushes several state government into defaults. This is what is usually referred as the sovereign debt crisis. Greece is facing the sovereign debt crisis because it did accumulate several debts during the decade prior to the crisis when the capital market was fragile. As the crisis unfolds and the persistent liquidity crunch in the world economy, Greece may not be able to overcome its maturing debt obligations. By the year 2008, Greece reported a massive budget deficit that was averaged over 5% per year as compared to the euro zone, which was averaged at 2%. To overcome the deficit, Greece borrowed money from the international market leaving it with a chronic high external debt. The reason for the current economic crunch situation in Greece is linked to the downgraded rating that the three biggest did to the state. This spurred the borrowing rate of Greece to skyrocketed levels. Moreover, the euro that Greece had adopted was hit as the fears of the crisis expanded to other euro zone countries like Portugal, Spain, Italy and Ireland. The panic went viral when the Greece economy made up only 2.7% of the total Euro zone GDP as well as having a 3.9% debt. In addition to the causes of the economic crisis in Greece are the state structural problems. Over the last decade, the government expenditure grew by 87%, and the revenue collected grew by 31% only. In other words, the government spending accounted for a whopping 50% of the GDP. An increasing overstaffing and reduced productivity in the government sector was encountered. Another aspect that stripped the economy down was the unregulated labour market. The industries in Greece were suffering from the constant decrease in the international competitiveness (Rady). Wages in the country increases by 5% annual rate since Greece adopted the euro, while the export to its trading countries has only grew by 3.8%. This makes Greece to be on the receiving side of poor economic growth. Moreover, the obsolete pension to people aged above 64 years has continuously risen and is expected to shoot from the current 19% to 32% by 2060. It means that Greece will be having an additional burden on the public spending system. As it is always known in economics, when investors lose confidence in the euro zone the value of the euro shall weaken. When the euro weaken there would be likely few exports to that region but more imports, this will further crunch the economy of Greece if drastic measures are not taken. The debt crisis in Greece has continually posed a large challenge to all the member states of the eurozone. Moreover, it is shaking the stability of the European monetary union and may soon bring it to its knees. After the country had piled a staggering 300 billion Euros of debt by 2010 in the market, the mistrust in the state dramatically escalated more so when the new government reveals incoherence of the country’s financial statistics. Even though Greece has got a smaller economy compared to its Euro zone members, its exit from the EU can bring havoc to the whole region as well as the state itself. The pros are that the country will adopt the use of its drachma that would have the effect of depreciated value. This means that it will become competitive in price thus boosting the country’s export. The government will also get back all the powers to its fiscal policy. However, the demerit that may come with the Grexit is far much dangerous. In that the country shall lose its purchasing authority in the region, and it is imperative to note that currently Greece imports almost 40% of medicine, food, oil and natural gas. A situation that may worsen if it tries to exit the EU (Öcal and Eren). The Greece banking system will be pushed to the verge of collapsing, since the majority of the shareholders will withdraw their funds and the debts that were converted into drachma will balloon making retirement benefits impossible. Such impacts will make Greece sink deep into multibillion-dollar debts thus crunching the economy further. To prevent such debt crisis not to happen in Greece and the euro zone at large it will be necessary to explore the cause of the crisis and their possible solution. This will include investigating how Greece joined EU, the major domestic problems that led to an ongoing deficit in Greece as well as the factors that are attributed to the Euro zone such as the growth pact and stability (Zahariadis). Greece joined the Euro zone in the year 2000 based on all the criteria of the Maastricht treaty. The agreement outlined the basic requirements to be met by a country to join EU, for example, not having a budget deficit of more than 3% and an overall debt that should not exceed 60%. To maintain these guidelines, the Greece government provided false information as later on revealed by Eurostat Company, which carried out an audit of states accounts. As Greece become member of the EU, it gained popularity and trust in the financial market thus making Greece borrow money. As the debt levels rose, the country that was relying on the low-interest rates of the previous years was left exposed to any shifts in the creditors change. The Euro zone later put Greece on sanction for violation of the stability and growth pact rules. This worsened the economy of Greece (Alogoskoufis). A bigger chunk of the countries revenue was spent on the public sector like the public pension entitlement. At one point, the average pension that was relative to other previous earning was at 96%, and the retirement age was averagely 61 years. If these are coupled, it means that the there was a demographic change where the greater part of working population shifted to pensioners and the remaining working cohorts continuously shrink. To solve the economic debt crisis in the country and the entire euro zone, supporting measures were instituted by the international monitory fund (IMF) and the EU. The primary rescue package for Greece contained 110 billion Euros to help in offsetting the loans, which was paid in three-year instalments. This helped Greece to pay urgent debts and avert being declared bankrupt. The government of Greece also took some drastic measures like removing all the allowances for all families who had an annual income of above 45000 Euros, unless they had five children and above. Wages for the local staff in politics were reduced by 10%, increased value added tax to equipments like cars, yacht, among other things. Privatization of several companies that amounted to gaining 10 billion Euros, reduction of the overall spending on health to over 1 billion Euros and the retirement age being raised to 65 years thus saving 1.2 billion Euros (Setser). In conclusion, the current situation in Greece is pathetic, with increased levels of unemployment. There has been an escalation in the number of people sleeping rough on the streets because of economic frustrations. Greece can move forward and solve its economic crisis by implementing all the proposals accordingly. Moreover, the government should encourage the citizen to get involved in innovation and technology advancement as this is a major area that boost the economy. Work cited Alogoskoufis, George S. “Greece’s Sovereign Debt Crisis: Retrospect and Prospect.” GreeSE Paper No.54 - Hellenic Observatory Papers on Greece and Southeast Europe (2012): 1–56. Print. Kousis, Maria. “Local Environmental Protest in Greece, 1974–94: Exploring the Political Dimension.” Environmental Politics 2007 : 785–804. Öcal, Fatih Mehmet (Sirnak University of Economics and Administrative Sciences), and Mehmet Vahit (Sirnak University of Economics and Administrative Sciences) Eren. “European Debt Crisis and Its Analysis.” International Research Journal of Finance and Economics September (2012): 115–126. Print. Rady, Dina Abdeil Moneim. “GREECE DEBT CRISIS : CAUSES , IMPLICATIONS AND POLICY OPTIONS.” Academy of Accounting & Financial Studies Journal 16 (2012): 87–97. Print. Setser, Brad. “Overcoming Developing Country Debt Crises.” Overcoming Developing Country Debt Crises. Vol. 1. N. p., 2010. 317–347. Print. Theocharis, Y. “Young People, Political Participation and Online Postmaterialism in Greece.” New Media & Society 2011 : 203–223. Zahariadis, N. “Greece’s Debt Crisis: A National Tragedy of European Proportions.” Mediterranean Quarterly 2010 : 38–54. Read More