Greek Crisis & Its Possible Impact on India

The Greek debt crisis has its origin in high government spending. Many problems arose over the years because of the country’s slow global growth. When Greece joined the European Union on January 1, 1981, the country was in good economic and financial shape. By 1999, its debt-to-GDP ratio was below 60% and was sizable, with the budget deficit being less than 3% of the GDP. 

Greece joined the Eurozone in 2001 and launched the single currency of the euro. However, in the next couple of decades, the situation deteriorated rapidly as a result of fiscal debauchery, which is defined as waste and excessive spending, leading to an increase in deficits and debt.

Timeline

In the 1980s, Greece was a poor country with a poor economy. However, it has made significant financial institutions hide debt and other expenses (such as pensions) to enter the European Community (and then the EU). Thus, the country was allowed to borrow at low, unadjusted interest rates. 

The country started spending this money. It began investing heavily. Without thinking about infrastructure projects like the Athens Olympics, the Greeks spent huge amounts on the military. As a small country, its threats were confined to dealing with severe corruption, poor governance, and poor tax compliance problems that crippled the country’s ability to generate income. Their financial books reveal that the country must avail more loans to continue its growth and development jobs and pay off its previous debts to get Greece back to good health.

The mortgage crisis put a lot of pressure on creditors, who suddenly did not want to or could not lend to the Greek government. The crisis abruptly severed the air debt, and the Greek economy began to crumble. Banks began to go bankrupt, and money stopped flowing into the country. Internal obligations also angered the masses and worsened Greece’s already deteriorating economy.

Summary of the Crisis

Greece is a society dominated by an economy that pursues profit rather than wealth creation. The government employs approximately 1.2 million people, or 27% of the total workforce. More than 80% of government spending goes to civil servants’ salaries, wages, and pensions. This sprawling bureaucracy continues to pass laws. About 100,000 laws have been passed since 1974. The citizens must pay all attorney fees. Additionally, they require a licence to do anything in Greece.

Reasons for Setback

• Due to the recession in the US, the tourism and export industries suffered a huge downturn.
• The EU awarded ‘bailout money’ (money to pay off debts) and called for an austerity law to be passed.

Austerity Bill

• 15,000 people lost their jobs in the public sector;
• Liberalisation of labour laws (businessmen can easily hire and fire employees);
• Reduced the minimum wage by 20%, from EUR 751 to EUR 600 per month.

EU Exit

Greece has two main political parties: right-wing and left-wing.

• Right-wing parties say that Greece will stay in the Eurozone and accept their demands to cut more jobs and government spending to save more bailout money.
• The left wants to renegotiate loan terms with the EU and the IMF and does not want to impose austerity measures.

Impact on India

There is no direct impact on the crisis with Greece, as India has no trade relationship with the country to a great extent. However, if the crisis spreads to other EU countries, it could impact India as well.

Europe is one of India’s most important trading partners. If other EU countries are caught in such a crisis, India’s exports could be adversely affected. Moreover, this will affect India’s capital outflows and inflows. 

With more than $355 billion in foreign reserves, the country is on track to grow at the fastest rate in the world. Thus, India can withstand any stress from the Greek crisis. India is dealing with the Greek crisis like other global economies. So far, there is no reason to worry about the developments in Greece.

Conclusion

The Greek Debt Crisis is the dangerous government debt Greece owed to the EU between 2008 and 2018. In 2010, Greece declared that it could not repay its debt, jeopardising the sustainability of the Euro Area itself. The EU provided Greece with enough loans to continue making payments. This is the largest bailout of a bankrupt country in the history of the world. 

In January 2019, Greece repaid only 41.6 billion euros. It plans to pay off the debt after 2060. The EU asked Greece to take austerity measures in exchange for the loan. These reforms are aimed at strengthening the Greek government and financial structures. Though this was done, these measures plunged Greece into a recession that didn’t end until 2017.