Question

What was the greek debt crisis and factors triggered this crisis

Answer 1

Dear Student,

While answering this question I belives that you are well know about the European Union.

Now You answere is here

• The Greek debt crisis is the dangerous amount of sovereign debt Greece owed the European Union between 2008 and 2018. In 2010, Greece said it might default on its debt, threatening the viability of the eurozone itself.
• To avoid default, the EU loaned Greece enough to continue making payments.
• Since the debt crisis began in 2010, the various European authorities and private investors have loaned Greece nearly 320 billion euros.
• It was the biggest financial rescue of a bankrupt country in history As of January 2019, Greece has only repaid 41.6 billion euros. It has scheduled debt payments beyond 2060.

Now the Factors are as follows

1. Structural rigidities
2. Reliance on externa Debts
3. High Fiscal Debt

Explanation’s are given below, kindly go through it.

1.Structural rigidities

• Large & inefficient public administration
• Costly pension 7 healthcare system
• Tax evasion and absence of the will to maintain financial discipline

According to OECD, spending on public administration as a percentage of total public expenditure in Greece was higher than in any other OECD member, with no evidence that the quantity or quality of the services are superior".

Public sector plagued by overstaffing and poor productivity.

An aging Greek population-the percentage of Greeks aged over 64 is expected to rise from 19% in 2007 to 32% in 2060-could place additional burdens on public spending and what is widely considered one of Europe's most generous pension systems.

Informal economy in Greece valued at between 25%-30% of GDP.

Observers offer a variety of explanations for the prevalence of tax evasion in Greece, including high levels of taxation and a complex tax code, excessive regulation, and inefficiency in the public sector.

  

2. Reliance on externa Debts (Large External Debts)

• Adoption of Euro
• Lax Euro rules enforcement

With currency block anchored by economic heavyweights (Germany & France), and a common monetary policy conservatively managed by the ECB, perceived stability due to Eurozone membership allowed access to capital at artificially low interest rates

Lax EU rules enforcement: No Financial penalty for Budget deficit >3% and debt >60% of GDP

Got away with hiding billions of dollars of debt through exchange rates swaps

3.High Fiscal Debt

• High Govt. spending on public administrations
• High Govt. Spending on pension and healthcare
• Low Revenue collection

Greek government expenditures in 2009 accounted for 50% of GDP, with 75% of (non-interest) public spending going to wages and social benefits.

Total Greek public pension payments expected to increase from 11.5% of GDP in 2005 to 24% of GDP in 2050.

Between 2001-2007, while central government expenditures increased by 87%, revenues grew by only 31%.