The Greek Financial Crisis

The immediate cause for the Greek debt crisis is the dramatic Greek public finance situation, which was hidden through creative accounting and manipulations for many years. In the book, “Europe and the Financial Crisis,” Antimo Verde describes that in 2011 the Greece public debt is nearing the “120 per cent of [its] GDP” and the “deficit/GDP ratio exceeds 13.5 per cent.” (323, Verde) Therefore, Greece was believed to be close to a default and risk of contagion to other weak countries, such as Portugal, Ireland, Spain and Italy. The fear exited that these weak countries will also not receive the required financial support and default too. Which made the situation in Greece extreme in comparison to other economically weak European countries is that only Greece had both high fiscal deficit and high debt (324 Name?). Foreign investors came to a consensus that Greece will not be able to sustain its financial responsibilities because the debt was so significant it would be unable to pay it back. Thus many foreign investors massively started to sell their Greek public bonds and consequently interest rated jumped upwards. This swiftly deteriorated Greek credit ratings and starkly increased the risk for a Greek …show more content…
The socialist government of Greece had to implement a strict unpopular package of policies to cut the deficit by 12 per cent of their gross domestic product in three years. These policies include abolishing the 13th and 14th month, raising the retirement age from 53 to 67 years, a 2-3 points increase in VAT and other taxes, and sale and closure of state corporations. This austerity package implemented by the Greek prime-minister resulted in strikes and violent demonstrations against the government. But, these fiscal policies increased confidence in the sustainability of the Greek public