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MacroEcons Greece
MacroEcons Greece
Article_ID=23658 http://abcnews.go.com/blogs/headlines/2011/11/an-idiots-guide-to-the-greek-debt-crisis/
Macroeconomics Project - Greece Later months of the 2008 witnessed the bankruptcy of Lehman Brothers, a 158-year old investment bank, the takeover of the stock-broking firm and investment bank Merrill Lynch, and the move by Goldman Sacks and Morgan Stanley to seek banking status in order to receive protection from bankruptcy. During the same weeks, the remaining four investment banks on the Wall Street all went under in one way or another.
Government Spending: Greece was living beyond its means even before it joined the euro. After it adopted the single currency, public spending soared. Note: The single currency refers to the Euro.
Financial statistics reveal solid budget surpluses existed in 1960-73 for the Greek general government, but since then only budget deficits were recorded. In 1974-80 the general government had an era with moderate and acceptable budget deficits (below 3% of GDP). Unfortunately this was followed by a long period with very high and unsustainable budget deficits in 1981-2014 (above 3% of GDP) http://en.wikipedia.org/wiki/Greek_government-debt_crisis
The Greek financial trouble started decades ago when government after government increased the size of the countrys payroll. A you scratch my back system rewarded supporters of the two biggest political parties with government jobs. This practice eventually led to a Greece where one in five citizens of working age held a government job. At one point politicians stopped offering so many government jobs and instead began handing out raises to those already working for the government. This, coupled with notoriously poor tax collection enforcement, had Greece scrambling to keep the money flowing. In early 2010, it was revealed that through the assistance of Goldman Sachs, JPMorgan Chase and numerous other banks, financial products were developed which enabled the governments of Greece, Italy and many other European countries to hide their borrowing. Dozens of similar agreements were concluded across Europe whereby banks supplied cash in advance in exchange for future payments by the governments involved; in turn, the liabilities of the involved countries were "kept off the books".
The traditionally strong Greek public sector saw wages rise to ultimately unsustainable levels http://abcnews.go.com/blogs/headlines/2011/11/an-idiots-guide-to-the-greek-debt-crisis/
Tax Evasion: Another consistent problem Greece has suffered from in recent decades is the government's tax income. Each year it is several times below the expected level. In 2010, the estimated tax evasion costs for the Greek government amounted to well over $20 billion per year. Debt Problem: The figure for Greek government debt at the end of 2009 was estimated to be around 299.7 billion. In Greece, there was no mechanism to adjust money and credit growth, causing it to run large current account and fiscal deficits without taking remedial policy measures. (This will come under monetary policy in lecture 9)