Question

A summary of the Great Recession effects on the Greek economy(with timeline)

Answer 1

Deeper Causes of the Greek Economic Crisis

1. The obscurity of nature and thus possession of property rights is a central aspect of economic institutions' efficiency. Essentially, in many fields of economic life, whether in the material or immaterial environment, there is uncertainty as to who is entitled to the ownership rights over such properties It is very difficult, under these situations, to consider consolidating creativity and encouraging development of intellectual property. Moreover, information about the business process does not circulate among the participants on purpose, or meets mechanisms built to establish anonymity. Asymmetric information is thus both a feature and a function of obscurite property rights

2. As per study by Prof. Reinhart in 2009, it was quoted that "Greece, since its independence in 1830, is in a state of bankruptcy almost 50% of the time". Obviously, this tells us a lot of things; more specifically, it tells us that the Greek society is constantly under the pressure of a restricted funding capacity for what the society itself perceives as its needs.

The 2008 crisis struck an increasingly fragile Greek economy that had already exhausted the conventional methods of fighting a classic recession; these methods required an expansionary monetary policy, as the fiscal deficit had exceeded very high levels in previous years. The condition led to a downturn in domestic demand, which affected the financial sector and further exacerbated public finances.

The deterioration of the Greek economy has already occurred in 2007, largely by rising spending as a result of excessive private housing purchases in 2006. This exponential rise in investment in residential property was aligned with the international market, but was also a product of government policy, primarily by developing a environment that "hurried" to buy  residential properties due to the expected introduction of VAT for these transactions. The excessive demand for real estate was further enhanced by the low interest rates offered by banks until 2007.

As a result, budget receipts rose at a slower pace than public spending before 2008. This immediately triggered a dramatic rise in the federal government's cash shortfall. This is notable that the cash deficit rose in 2008 to €18.25 billion (representing 7.5 per cent of GDP), which is much greater than the €16 billion deficit reported in 2004, the year of the Olympics in Athens.

Accordingly, the global financial fatigue has been evident since 2008. At the end of 2008, a deficit of 10 per cent was followed by a cash shortfall at the end of 2009, which was equivalent to 15 per cent of GDP.

In the Greek society the recession of 2008 was visible mostly by the informative deluge about events in the USA and then in Europe. It was first observed in the Greek economy after a dramatic fall in the prices of the Athens Stock Exchange due to the liquidation of shares by foreign investors who held around 50 per cent of the overall volume of the Greek capital market.

The “upcoming recession” reduced consumer confidence and reduced investment plans. The situation of public finances also decreased public investments, whereas the crisis directly affected the trade.