Lets Learn from GREECE
Greece ranks 27th (2009) in the world according to their Nominal Gross Domestic Product and 34th largest at Purchasing Power Parity (PPP), Greece is indeed a Developed country securing 22nd Highest place in the field of Human Development and quality of life. Example – Education, Literacy rate, Life expectancy etc... (Will be discussed further in Background)
Greece is a member of European Union, Euro zone, OECD, the world trade organization. Looking at the economic Pie Chart of Greece constituted with GDP – the public Sector accounts for about 40%, the service sector contributes 78.5%, industry 17.6%, agriculture 4%, hence being recognized as the 31st most globalized country (interdependence through channelized web of connections and trade) with High-Income.
Although the growth performance of Greece from the early roman empire through the early 1800 was the best in Europe with at least some parallels with England’s colonial export policy (mercantilism) and performance, Greece has been cited as an example of a country that has experienced “High Economic growth with development” because of its less economic inequality and social division that have been in favor of the growth prospects. Yet, over the century the Greek economy has had a very “disappointingly” fluctuating rate of economic growth (GDP + GNP). After a rapid development in the years following the end of the “civil war”, the growth of real GDP slowed to 1.5 percent annually in the year 1973-95. The Poor economic performance continued till the late 1980’s. Beginning in the mid-1970s the government of Greece motivated hefty and sustained budget deficits and monetary policy accommodated a sharp acceleration of inflation. High rates of wage inflation led to a squeeze of profit margins and a weakening of investment incentives.
Other studies support this view, providing comparative measures of standard of living. The per capita income (in purchasing power terms) of Greece was 65% that of France in 1850, 56% in 1890, 62% in 1938, 75% in 1980, 90% in 2007, 96.4% in 2008, 97.9% in 2009 and larger than countries such as South Korea, Italy, and Israel. The country's post-World War II development has largely been connected with the so-called “Greek economic miracle” – The term (modern) Greek economic miracle has been used to describe the impressive rate of economic and social development in Greece from the early 1950s to the mid-1970s.
Early 70’s – Late 80’s
Until the mid-1970s, Greek governments devoted themselves principally to expanding agricultural and industrial production, controlling prices and inflation, improving state finances, developing natural resources, and creating basic industries. In 1975, the Karamanlis government undertook a series of serious measures designed to curb inflation and redress the balance-of payments deficit. To do so, a new energy program included plans for stepped-up exploitation of oil reserves, along with uranium exploration in northern Greece.
On 7 March 1975, in an effort to strengthen confidence in the (drachma) national currency, the government announced that the value of the drachma would no longer be quoted in terms of a fixed link with the US dollar, but would be based on daily averages taken from the currencies of Greece's main trade partners. Did that threatened USA? Still remains a question…
The Socialist government took office in 1981 promised more equal distribution of income and wealth through "democratic planning" and measures to control inflation and increase productivity. It imposed controls on prices and credit and restructured public corporations. But the government was cautious in introducing what it called "social control in certain key sectors" of the economy, and it ordered detailed studies to be made first. Its development policies emphasized balanced regional growth and technological modernization, especially in agriculture.
ECONOMIC FLUCATUATIONS: BACKGROUND
The conservative government that came to power in 1990 adopted a 1991–93 "adjustment program" that called for reduction of price and wage increases and a reduction in the public-sector deficit from 13% to 3% of GDP. Twenty-eight industrial companies were to be privatized. It somehow was something similar adopted by Margaret Thatcher of England to drive Economy in early 1990’s, through which a huge number of Immigrants were involved in construction and real-estate business.
In late 1990’s, the chief goal of the Simitis government was admission to the European Monetary Union (EMU). As a result, his administration instituted a severity program intended to tackle chronically high inflation, unemployment, and a blown up public sector. By 1998–99, these policies showed significant progress with tremendous changes. Greece gained admission to the EMU in 2001, (which will be discussed more later) and adopted the euro as its new currency in 2002. The Greek economy was growing at rates above EU averages in 2002–03; however, unemployment and inflation rates were still higher than in most euro-area countries. In 2002, Greece's general government debt stood at approximately 99% of GDP. Greece benefits from EU aid, equal to about 3.3% of GDP.
Privatization of state-owned enterprises has moved at a relatively slow pace, especially in the telecommunications, banking, aerospace, and energy sectors. In 2003, preparations for the 2004 Olympics drove investment that boosted tourism.
Average GDP growth rate
Economic growth is the increase of per capita gross domestic product (GDP) or other measures of aggregate income, typically reported as the annual rate of change in real GDP. Growth is generally necessary, through not sufficient, for achieving development. In 2009, Greece per capita income was $29882. Using purchasing power parity, its average income was only $ 1.93% about thirty times of that of the Bhutan but almost five times that of USA.
GDP-per capita (PPP): $30,200 (2010 est.)
$31,500 (2009 est.)
$32,200 (2008 est.)
Note: data are in 2010 US dollars
Causes of the Productivity Slowdown
In early days, the accounts on the collapse of economic growth in Greece are quite straightforward as; there was a large “falloff in the rate of capital accumulation and its contribution to the growth in output” in short the Mercantilism method of Economic Management.
As we shall show, a decline in investment should be of no surprise in view of the sharply deteriorating macroeconomic situation and the collapse of profits in the 1980s. However, the causes of the severe falloff in MFP growth are more difficult to quantify. We have come to conclude that it was the product of a large number of negative developments, including among others the worsening macroeconomic situation, a weak international competitive position, and a highly inefficient structure of the labor market. It is also very clear from a simple examination of trends in foreign direct investment that Greece has not been viewed as a promising investment opportunity, like that of China – where the overseas market’s are welcomed with much enthusiasm through wavier on Tax and cut on Cost of Production to maximize their capacity in exercising long term trade and commerce.
Overview of the 2010 Greek Debt Crisis
Greece gained admission to the European Monetary Union in 2001, and adopted the euro as its new currency in 2002. As a member of the EMU, Greece, previously a high inflation risk country under the drachma, was now provided access to competitive loan rates of the Eurobond market. With the dramatic increase in consumer spending, the Greek economy was given a significant boost as from 1997-2007 Greece averaged a 4% GDP growth, almost twice the European Union average.
However, the financial crisis and consequent meltdown of the world economy took their toll on Greece’s rate of growth, which slowed to 2.0% in 2008. The economy then went into recession in 2009 and contracted further by 2.0% as a result of the world financial crisis and its impact on access to credit, world trade, and domestic consumption. Despite high growth and low interest rates, Greece had major fiscal and structural weaknesses that were aggravated by the global financial crisis and ensuing recession. High fiscal deficit, decreasing competitiveness due to higher than Euro-zone average inflation, tax evasion and corruption all led to the 2010 Debt Crises in Greece. In early 2010 when markets began to question the sustainability of Greece’s public debt it resulted in even higher borrowing costs. Eventually these high borrowing costs led to Greece losing market access and forcing the Prime Minister to request emergency aid from Euro zone partners and the International Monetary Fund.
Thus in early May, the Greek parliament, Euro zone leaders, and the IMF approved a 3-year €110 billion adjustment program to be overseen jointly by the European Commission, the European Central Bank, and the IMF. Under the program, Greece must undergo major fiscal consolidation and to implement substantial structural reforms in order to place its debt on a more sustainable path and improve its competitiveness so that the economy can recover. The 3-year reform program includes measures to cut government spending, reduce the size of the public sector, tackle tax evasion, reform the health care and pension systems, and liberalize the labor and product markets. Greece has committed to reduce its deficit to fewer than 3% of GDP by 2014.
As already mentioned, in order to cope with the crisis the Greek government has started slashing away at spending and has implemented austerity measures aimed at reducing the deficit by more than €10 billion. It has hiked taxes on fuel, tobacco and alcohol, raised the retirement age by two years, imposed public sector pay cuts and applied tough new tax evasion regulations. However this has not suited well with the public as there has been resistance from various sectors of society. Additionally workers nationwide have staged strikes closing airports, government offices, courts and schools. Without a doubt, the tension between the government and the Greek public will not only intensify social unrest, but also undermine the effectiveness of the government’s anti-crisis measures.
The effects if Greece were to give up the euro, advantages and disadvantages if such a situation possible?
The Greek debt crisis can be said to be the biggest challenge for the euro zone since the inception of the euro. As the future of the crisis is undefined many fear that the euro zone may be unable to recover from this setback and may even disintegrate.
A few economists maintain that leaving the euro zone is inadvisable but a few others contend that such a move can be accomplished but with extreme difficulty, at considerable cost and should be only used as a last resort. It would first have to consider the three do’s: devaluation, debt and default.
A country which left the euro could allow its currency to fall in value, and thus improve its competitiveness. But it would be the cause of huge problems in the financial markets as investors would fear other nations would follow, potentially leading to the break-up of the monetary union itself.
On the other hand if Greece were to forfeit, it would be charting into unexplored territory as there is no mechanism that can be implemented for countries to leave the European currency.
However as we are aware of Greece is in the process of being bailed out regardless of the cost because the alternative will throw Europe and then the rest of the world into financial chaos. All currencies would suffer exponential inflation, industries would collapse, unemployment would increase and then there would be an even bigger mess to deal with.
The economic power of the euro zone, which consists of 16 European nations, is recognized worldwide. Besides time has proven that since the birth of the euro, European countries have mostly and significantly benefited from it. It is unlikely Greece or any other nation for that matter will ever give up the euro and revert to long-abandoned currencies such as marks, francs and drachma.
Conceptual frame work - Web-Reading
Goldman was criticized for its involvement in the 2010 European sovereign debt crisis. Goldman Sachs between the years 1998–2009 has been reported to systematically help the Greek government to mask its national true debt facts. In September 2009, though, Goldman Sachs among others, created a special Credit Default Swap (CDS) index for the cover of high risk national debt of Greece. The interest-rates of Greek national bonds have soared to a very high level, leading the Greek economy very close to bankruptcy in March 2010 and yet again in May 2010.
Despite all these controversies and economic crisis, Greece still upholds their very Soft Power of running the entire Economic show and readings based on Tourism accounting to more than 16 million tourists (20 times that of Bhutanese Citizens) each year, thus contributing 15% (equivalent to that of USA military Spending) to the nation's Gross Domestic Product. In 2008, the country welcomed over 16.5 million tourists.
$69.6 billion (2010 est.) Export goods food and beverages, manufactured goods, petroleum products, chemicals, textiles
Main export partners
Germany 11.11%, Italy 11.05%, Cyprus 7.28%, Bulgaria 6.74%, US 4.95%, UK 4.4%, Turkey 4.23% (2009) Imports $97.6 billion (2010 est.)
machinery, transport equipment, fuels, chemicals
Main import partners
Germany 13.73%, Italy 12.71%, China 7.08%, France 6.1%, Netherlands 6.02%, South Korea 5.68%, Belgium 4.34%, Spain 4.08% (2009)
Gross external debt
$532.9 billion (30 June 2010)
37.8% of GDP (2009)
53.2% of GDP (2009)
In conclusion, Greece has implemented a very successful program for stabilizing the macroeconomic environment, despite the recent Debit Crisis leading to one of the most controversial economic downturn, but it is still in the process of developing an effective strategy for promoting economic growth through channelized Microeconomic management and allocation. It has no well-defined areas of comparative advantage in the international sphere, and it has not yet implemented the institutional changes that would create competitive pressures for a faster pace of innovation and efficiency gains in the domestic economy. For example, it has no sector like the export-oriented electronics in Ireland that could serve as a leading source of growth.
If the country is not going to pursue the traditional route of using the tradable goods sector as the driving force for growth, it needs to articulate an alternative approach based on a rapid upgrading of domestic services industries. However, Greece remains as one of the Developed Nations in the world as part of the OECD and EU. Thus the study that we carried out is to show the economic growth and progress in relation to economic development for the Developing countries to make shape their microeconomic management and the importance of transparency in the organization or any bureaucracy.
Greece wouldn't find it easy to leave the euro
Greece - Will the Country Leave the Eurozone to Restore a Broken Economy?
Q&A: The Greek crisis
Q&A: Greece’s economic woes
Greece’s financial crisis explained
UN – Survey from 1990 – 2010
Economic Development – Text – ninth Edition; Stephen C. Smith