Has The Greek Crisis Ended?

The Greek economy has recently faced one of the most significant economic crises that the world has ever seen. Back in 2010, the country was heading towards an inevitable default. The debt payments had entirely gone out of control. As a result, both financial, as well as political turmoil, was rampant. Greek people have suffered devastating austerity for the past eight years. However, now the crisis seems to have reached a turning point. Greece has now announced that it does not need any more bailouts. This is a stunning achievement given the fact that Greece has received three bailouts in the past eight years. Just a few years back, an independent Greek economy would have been inconceivable. However, does the elimination of dependence from bailouts mean that the Greek crisis has ended?

In this article, we will have a closer look at the intricacies of the Greek economy.

How The Greek Economy Has Recovered?

The Greek economy has come out from the throes of an economic depression. They have been able to do so because of severe austerity cuts. The government had to undertake several unpopular measures simultaneously. They had to raise taxes to unprecedented levels. At the same time, the government laid off people in large numbers. The result was that most people were not able to sustain even a basic standard of living. The Greek GDP has fallen by more than 25% in the past few years. However, since the government has stopped a lot of wasteful expenditures, the Greeks now have a primary budget surplus. This budget surplus is one of the main reasons why the leaders in the Eurozone are confident that Greece will not be requiring a bailout anytime soon. This is also the reason why the European leaders have been claiming that Greece is no longer in crisis.

Unrealistic Assumptions

The problem with the European leaders’ proclamation is that they have some very unrealistic assumptions. First of all, the current debt to GDP ratio of Greece is 180% which is very high. They plan to bring it down to 100% of GDP which is also high but not astronomically high. The problem is that according to their plans, the Greek debt will reach 100% of GDP by 2060! Hence, most Greeks are going to spend their lives living in extremely challenging economic conditions.

The problem is that given the circumstances, Greece is not even expected to reach 100% debt to GDP ratio even by 2060. The European officials have made some extremely challenging assumptions while arriving at this conclusion. According to them, Greece will maintain a 3.5% budget surplus until the year 2022. Then, Greece will continue to maintain a 2% budget surplus until the year 2060. This plan can be said to be unreasonable because no country in recent history has been able to achieve this. It is true that once a while, countries like Germany, China or Australia have a budget surplus. However, no country has had consecutive budget surpluses for decades!

Given the unrealistic assumptions, this celebration seems like false bravado. It seems like it’s only a matter of time before the Greek economy finds itself embroiled in a crisis once again.

Unemployment

At the peak of the crisis, the Greek unemployment rate was a massive 28%. This rate has now been reduced to 19%. This can be considered to be a massive improvement. However, this rate is still astronomical when compared to other countries in the Eurozone as well as across the world. Also, the Greek economy has been revived by the tourism industry. This means that most of the jobs being created are entry-level jobs. The Greek economy isn’t really producing any high-level jobs. A large number of people in Greece are working way beyond their educational qualifications. The unemployment rate does not depict the underemployment that has become a part of life for many Greeks all over the world.

High Taxes

The taxes in Greece have gone through the roof. Any person that earns slightly above the bare minimum required for survival has to pay 75% in terms of taxes. Also, the taxes on inheritance are so high that many millennials are simply refusing to take over their parent’s estates. Many are simply forfeiting these properties in favor of the government. At the present moment, the taxes on business are also very high. However, if Greece wants to improve its employment rate, it will have to give concessions to the business. This might mean an even further increase in personal taxes.

Ailing Banks

Greek banks still have a very large number of bad loans. The fact is that most people in Greece are simply not able to pay their mortgages. The Greek government has passed a law which prevents foreclosure of homes if they are the primary residence of the people occupying them. The Greek government does not want to increase homelessness in the country. However, this law negatively affects banks since many people willfully don’t pay their mortgages knowing that their homes cannot be repossessed.

The bottom line is that eight years of hard work have brought some respite for the Greeks. However, the crisis is still far from over. Even if the optimistic estimates given by the Europeans are believed, the crisis is still going to persist till 2060!


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