Greek Crisis and Its Possible Impact on India

Greek Crisis: Summary

Greece is a country with a rich and diverse history, which plays an important part in mapping the world. But in recent years, Greece has had to face a painful and prolonged economic crisis. The recession and the cost of the measures to mitigate it led to the sharp rise of Greece’s already exorbitantly high public debt.

In 2000, Greece was a country that had abundant access to small and cheap capital and a strong capital market. In addition, it has increased investor confidence after adopting the Euro in 2001.

The global financial crisis of 2008-2009 caused anxious public financing and, following the disclosure of falsified statistical data, drove up Greece’s borrowing prices. By early 2010, Greece risked insolvency on its public debt.

The turmoil of the great worldwide recession and lack of monetary policy flexibility as a member of the eurozone are also important reasons for the Greek crisis. It adversely affected the people of Greece both economically and mentally.

Due to the crisis, the demands of Greek creditors to return financial assistance led Greece to severe austerity, which resulted in the reduction of salaries of workers, loss of thousands of jobs as well as loss in property, impoverishment, and services provided to the public were also cut. In all, it was a small-scale humanitarian crisis.

Causes of Greek Crisis

The Greek crisis mainly originated or was caused by heavy government spending and the slowdown in global economic growth over the years.

The root of the Greek crisis has several factors, including the highest pension spending in the European Union, the prolonged macroeconomic imbalance that the Greek economy faces, the credibility problem of microeconomic policy and political and cultural factors.

There is no doubt that the constantly running and widening public defects, in conjunction with the decrease in the external competition, played a crucial role in the deterioration of the fiscal stance of the Greek economy.

The increased public expenditures over recent years led to a large increase in borrowing requirements and a high level of accumulated public debt.

The governments of the eurozone have failed to give a clear signal indicating their readiness to support Greece.

Impact of Greek Debt Crisis on India

The direct impact caused by the Greek debt crisis was very little or limited on account of the sound macroeconomic fundamentals of the Indian economy.

But India suffered an indirect impact as the foreign exchange rate depended on the reaction of European countries to the Greek crisis.

India’s exports to Greece only amount to 0.05%, and a small drop in exports has been seen.

The banks of India have virtually no direct connections with Greece. So, there was no effect on Indian banks due to the crisis.

When Europe and the IMF put in the massive rescue package, including trillion-dollar funds, the stakes were raised and affected the Indian economy.

Impact of the Greek crisis on the world economy

• Since Greece’s debt crisis began in 2010, most international banks and foreign investors have sold Greek bonds and other holdings, so they are no longer vulnerable to what happens in Greece.

• The IMF expects a need for more debt relief in the imminent future.

Conclusion

From 2010-2018, the Greek debt crisis had a variety of consequences on the economy and people of Greece. 

The media of western countries restlessly focused on selecting negative ideas about the Greek society, organisation, and on economic activities.

• Greece’s 10-year bond spreads collapsed in fear of default.

• GDP budget deficit has crossed more than 15%.

• VAT and Corporate taxes needed to increase.

• Regular budget deficits and problems in the balance of payments despite measures taken to improve the economy.