Academic journal article Global Business and Management Research: An International Journal

Greek Financial Crisis

Academic journal article Global Business and Management Research: An International Journal

Greek Financial Crisis

Article excerpt

Introduction

The end of II World War and, particularly, the end of civil war found Greece economically ruined. It had no capital, infrastructure and machinery. Its agricultural sector generated less than half the prewar level. There was hyperinflation and massive devaluation of the drachma.

Plenty of investments took place in Greece from U.S.A following the Truman Doctrine of 1947 and Marshall Plan. Around 1950, these investments began to yield, and production reached the pre-World War II levels.

Since 1950, the Greek economy started recovering. Spyros Markezinis who was on the wheel of the economy followed a liberal economic policy freeing international trade and allowed for development reasons the adjustment of the monetary value of the drachma. Due to economic stability, Greeks and others began investing in drachmas instead of gold. Marginal propensity of savings increased, inflation went down and foundations were established for continued economic progress. All this led to an economic miracle. Between 1950 and 1960 the average annual rate of growth was around 7% (Greek Rider, 2010).

The Prime Minister of Greece, Konstantinos Karamanlis, signed customs union with the European Community in November 1962. Greece witnessed in the 1960s tremendous economic growth. There was construction of new buildings, new roads, and new factories with cheap labour. In addition, high productivity growth took place with high domestic investment from the savings that had begun in 1953.

The purpose of the present study is threefold:

* First, the development of the Greek economy is analyzed. The general government debt in relation to gross value added, the general government balance as a percentage of gross value added, the consumer price index and long term interest rates covering the period 1963-2010 will be studied.

* Second, the reasons that brought Greece into the present financial crisis will be looked at.

* Thirdly, ways out of the present financial crisis will be highlighted.

The outline of this paper is as follows:

* Section 2 looks at the evolution of Greek economy covering the period 1963-2010.

* Section 3 gives the events before the Memorandum.

* Section 4 indicates the main points and unconstitutionality of the Memorandum.

* Section 5 highlights the forecast and proposals in order to get out of the crisis.

* Section 6 underlines the conclusions.

The Evolution of Greek Economy

Table 1 exhibits the annual growth of Gross Domestic Product (GDP), Gross Domestic Product per Person Employed, gross fixed investment, unemployment rate, inflation, long-term interest rates, general government balance % of GDP and general government debt % of GDP. Table 2 highlights the average annual rate of growth of all the mentioned indicators over the periods 1963-1973, 1974-1984, 1985-1995, 1996-2006 and 2007-2010. All data are on constant prices and were taken from Eurostat, being revised in 2011.

Table 1, table 2 and graph 1 show that in the period 1963-1973 the average annual rate of growth of: GDP was 7.94%, GDP per person employed 8.45%, gross fixed investment 10.57%, unemployment 4.18%, inflation 3.96% and general government debt % of GDP 17.98%.

The big propensity for saving, the important surge of foreign direct investments, abundant and relatively cheap workforce, as well as the political stability, could be reported as certain the factors that led to this rapid growth of the Greek economy. The connection of the country with the then called EEC constituted also an important factor of progress of the Greek economy. Exports to the EEC were realized and for a relatively long time Greek domestic production was protected, because of the progressive adaptation of Greek tariff to the common exterior tariff of EEC (Paris, 2009).

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Furthermore, table 1, table 2 and graph 2 show that in the period 1974-1984 the average annual rate of growth of: GDP was 2. …

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