The Greece crisis

Overambitious proposals and their consequences

Overambitious proposals are one of the obstacles that face the formulation of sustainable growth policies. This is a frequent occurrence, particularly during the transition of reforming administrations, where politicians make false commitments to the public in order to entice them to vote for them. They fail to recognize that the execution of production policies is dependent on a variety of factors other than human drive and inspiration (Muhammad, et al.). The majority of these considerations are determined by the economic climate. Overly ambitious proposals have two consequences:

Failure to realize the proposals

They could not even be realized at all. There is often a temptation to overlook tasks that are far beyond one’s abilities to do.

Adverse economic effects

They could lead to adverse economic effects in the economy. The vigorous attempts to forcefully implement such plans could end up hurting the economy instead of helping it.

The Greece Crisis

How Greece got into this problem.

Greece is one of the countries whose economies face severe challenges and crisis as a result of wrong fiscal planning. These problems have led to what is commonly referred to as the “Greece Crisis.” By the year 2010, the Greek finance minister, George Papaconstantinou, was already wondering whether the policies that the government had instituted would allow it to restructure the country’s public debt. It was only a short period after he had promised when campaigning in the year 2009 that he would strengthen the social protection. Little did he know that what would come after was more of a dilemma than a solution (Manos). When his party, PanHellenic Socialist Movement (PASOK) took office, and George was named the Finance Minister, he promised that the country’s GDP would double from about 3.7% to 6.7%. He further continued to explain that the GDP would reach 15.4% by the time it was November 2010. This kind of promise sounded wildly optimistic!

Things did not turn out as Papaconstantinou and the government expected. The GDP deficit numbers continued to worsen, and it started raising alarms not only to the Greece citizenry but also to the international community. The International Monetary Fund (IMF) and the European Union (EU) are some of the international organizations that intervened to help solve the problem. Several negative implications followed this turn out of events which include:

An increase in the interest rates to about 19%. Only an emergency loan from the IMF and EU helped to allow Greece in avoiding default.

An enactment of a severe retrenchment by the Greece government where it reduced the pension and salaries of public employees, raised the retirement age, cut the number of services and increased salaries. This retrenchment led to a drastic decline in the number of employees (Roberto).

Demonstrations and riots from the members of the public to express their dissatisfaction towards the government’s failure in stabilizing and correcting the deficits in the economy.

It is evident that the government’s ambitions and policies were more of a tragedy than a solution. It not only failed to deliver its promises but also affected the lives of its citizens who were forced to repay loans at a very high-interest rate and also face serious labor problems. The government was therefore entirely responsible for this economic crisis.

Investing in Greek Government Bonds

Would you buy Greek Government Bonds (GGBs) now?

Investing in the Greek Government bonds as of now would be a very bold and brave investment. Only great risk takers would dare to put their money in these bonds. It, however, does not imply that the bonds are not capable of bringing back good returns. Some people have invested in them and ended making hefty amounts of money. When it comes to government bonds, an investor should not only look at the current prices of the bonds. Future considerations are quite critical in bond investments (Alexander, et al.). It involves an assessment of how the bonds are likely to behave in the future.

Judging by their prices, the investment community may make decisions blindly. This blind investment is what results in an unreasonable panic that is bound to come later. When the government took over, the benchmark yield decreased from 11.2% to 9.5%. With such a price, the bonds seem to be very cheap for acquisition. The acquisition price, however, might not be as important as the price that the bonds will sell in the future as it would determine whether the investor would make a profit of a loss (Marina, et al.). The bonds are speculated to get even cheaper with time. The economists say that the Greek government might run out of the funds that the EU and IMF have been using to bail its economy out of this crisis. Nobody else might be willing to give the Greek government more money.

Such a scenario might be a big blow to Greece Government Bonds holders. The prices may continue declining below the 9.5 % and especially if no proper measures are put in place by the government. The investors will then sell the bonds at such a low price that they will only end up making bigger losses. The Greece government’s complacency is the major factor that scares away investors from buying these bonds. (Manos). Up until proper policies are formulated to solve this crisis, I would not only fail to buy the bonds but also discourage investors from putting their money in such a risky platform.

The Future of the Euro and Euro Financial Markets

Does the Greek Crisis Spell Doom for the Future of the Euro and Euro Financial Markets?

The biggest worry that many economists have concerns what the future holds for the Greek economy. While they are quite optimistic that the situation might be rectified, they have not failed to express their worry about a doomed future. That the government is more concerned about leadership and power acquisition than the economy’s welfare complicates the problem further (Muhammad, et al.). It is also crucial to identify that the government has tried to establish policies that will improve the economy. After PASOK took power, the revenue realized from privatization increased. It was an indication that their efforts were not entirely fruitless.

As a member of the European Union, Greece is not expected to default at all. It is expected to comply with all the directives that the EU requires of it. As long as it complies with the debt payments, the EU will continue lending Greek bank reserves. If it defaults, it then becomes impossible for the Greece Central Bank to use this platform. Such a situation would end up causing a banking crisis (Marina, et al). The government is all the more determined not to default so as to continue benefiting from the EU’s lending of its bank reserves.

Greece’s agreement with the IMF and the EU requires that it stabilizes its public debt. The interest rates are estimated to be between 5% and 6% in the future. The rates of other member countries such as Ireland, Spain, Italy, and Portugal could also rise. The primary challenge that Greece faces is whether it would stabilize the ratio of its public debt to that of its GDP. It has been imposed on the government to increase taxes on the wealthy and reduce the export costs so as to achieve the stability in public debt (Roberto). This act that has been slowing down the economic growth rate.

Economists say that the cuts that are inflicted on the weaker economies of the Eurozone reveal a significant weakness in the single currency. It lacks a centralized budgetary mechanism that facilitates the movement of resources from the union’s rich part to the poor ones (Marina, et al.). They feel that Greece shouldn’t have joined the union in the first place. It would have been easier to solve their problems with their fiscal policies. When an extreme crisis arises in the union, the other members start seeing the need to have their currencies as they will not have to always participate in the devaluation of weaker economies. The result is that they might leave the Eurozone which in turns weakens the currency as well as the union. The Greece crisis, therefore, spells doom for the cohesion and future of the Euro financial markets as it might trigger other members to default and leave the EU.

The Greece crisis is, therefore, a primary point of concern both within the country and in the European Union. It leaves many wondering what it might lead in the future and what could be done in the present to prevent the adverse effects that might elope later. The government should, however, be more vigilant in stabilizing the public debt and in solving the macroeconomic problems that face the economy such as unemployment, retrenchment, and increased taxes.

Work Cited

Akram, Muhammad, et al. ”Contagious Effects of Greece Crisis on Euro-Zone States.” International Journal of Business and Social Science 2.12 (2011). This is an educational journal that features the effects of the Greece Crisis and how they spill over to other Euro-zone membrers.

De Santis, Roberto A. ”The Euro area sovereign debt crisis: safe haven, credit rating agencies and the spread of the fever from Greece, Ireland and Portugal.” (2012). It is an educational guide with tables, charts and information on the debt crisis facing the Euro-zone members that arises from economic challenges in weaker economies such as Greece.

Economou, Marina, et al. ”Suicidality and the economic crisis in Greece.” The Lancet 380.9839 (2012): 337. It is an economic analysis of the suicidal policies that the Greece government established which led to adverse and severe economic problems.

Kentikelenis, Alexander, et al. ”Health effects of financial crisis: omens of a Greek tragedy.” The Lancet 378.9801 (2011): 1457-1458. This is an assessment of the health effects that are caused by financial crisis. It seeks to explain how the Greek tragedy affects the health of the citizens.

Matsaganis, Manos. ”The welfare state and the crisis: the case of Greece.” Journal of European Social Policy 21.5 (2011): 501-512. This is an educational journal that analyzes the state welfare after a financial crisis while using the case of Greece as a case study.