Greece and the Economy
Greece has had one of the most powerful economies in the European Union because its financial system is hinged on the service industry. The most valuable Greek industry is tourism: Greece ranks as one of the most tourist attractive countries in the world. The Greek economy had been identified as one of the forward and high-income economies for a very long time. It is a founding member of Organization for Economic Cooperation and Development (OECD) (Petrakis 250). However, the country’s economic growth and stability dropped in the 1950s to 1970s because of the effects of the Second World War, which affected all European countries and their economic growths. Its fortunes continued to dwindle in the 21st century because of the devastating financial crisis of the late 2000s and the debt crisis that now affects the European sovereign states.
It is during this period that the growth rates decreased until the public debt of the country reached 170.6% of the nominal GDP. Greece enjoyed fourteen years of economic growth because of its main industries such as industrial products, shipping, textiles, food and tobacco processing, chemicals, mining, petroleum, and metal products. The industries made the Greeks to sustain living standards considered very high with an even higher human development index. However, Greece faced the worst recession in 2008 marked with increased levels of unemployment, low global competitiveness, corruption, tax evasion and a public sector whose bureaucracy appeared inefficient. All these factors made Greece to have the highest budget deficit among countries of the European Union. This instigated spiraling debts and rising borrowing, which eventually led to a severe economic crisis by the end of 2009 financial year (Wolf 1-5).
Greece was the largest producer of cotton and rice in the European Union. It fared much better in terms of agriculture and fishery: industries that employed 12% of the labor force. Shipping has also been a key economic pillar for the growth of Greek economy. Other services that also contributed to the development of the Greek economy were tourism, telecommunication, and transportation services (Wolf 6).
Greece, in a desperate attempt to recover from the economic meltdown, has in the past year agreed to a second massive bailout. It has held two elections considered tumultuous and carried out an unprecedented restructuring of its public debt. However, these moves did not live up to the expectations. Consequently, Greece adopted some policies that led to a slow and hesitant recovery. The government has started by having a large and sustained fiscal consolidation. This was to ensure that the public finances of the country were stable and the markets reassured. Greece also had an ambitious structural reform program aimed to restore its competitiveness and unleash the productivity of the citizens (Petrakis 309). This would ensure that the required sustainable increase in the economic growth: more jobs and improved living standards. Greece has also decided to engage in deep fiscal structural reforms instead of fully relying on temporary measures for the economic recovery. Policies on tax include fighting tax evasion and widening the tax base (Matsaganis, Leventi, and Flevotomou 26-9).
The government has also cut on its spending on expenses and directed more expenditure on improved administration. The government has proposed ideas on the reduction of the public-sector wage bill. This will ensure that it channels most of its revenue on plans that translate to the economic recovery of the country (Petrakis, 315). In the spirit of goodwill, the states constituting the European Union coupled with global financial leaders have all agreed to release $57 billion to aid in the stabilization of the economy by providing additional debt relief. The money, to be released in four installments, will reduce the debts of the country by $54 billion (Matsaganis, Leventi, and Flevotomou 30-32). However, the conditions set for the loan include a debt buyback program and an interest rate cut on the loans. The main aim of the debt relief program was mainly to improve the economic growth. It was also to ensure that it independently raised the money on the market debts to be safe when the bailout period runs out at the end of 2014 (Wolf 12-15).
In 2012, Greece got a reprieve from its financial woes because the finance ministers of the Euro zone approved the financing of the second adjustment program. The member states of the Euro zone and the IMF put aside some funds, which would rekindle country’s economic recovery. The Euro members also agreed to lower the interest rate charged to the loans to the Greek people: to reduce the amount they paid to the lending countries (Petrakis 367). The member states also agreed to commit on passing a segregated account of Greece and to lower the guarantee fee costs.
Nonetheless, Greece needs to apply some recommendations to guarantee the long-term economic growth and stability. It has, consequently, proposed reforms that could assist the improvement of health care systems, pension schemes, and public administration. This will increase the long-run competitiveness of its economy, ensure employment, and spur economic growth. This is achievable by fostering economic development and increasing research, technology, and innovation. Greece also has the advantage of escalating its economic growth and stability by attracting new foreign investment that will boost export of goods and services, which eventually leads to increased employment. The financial assistance given by the European Union and the IMF to Greece will also add to the trade and investment opportunities that translate to economic growth.