Can Greece recover?
Rady, Dina Abdel Moneim, Greece Debt Crisis: Causes,
Implications and Policy Options, Academy
of Accounting and Finance Studies Journal, Volume 16, Special Issue, 2012,
PP 87-96
This article starts by describing how deep in debt
Greece is (Rady, 2012). By 2010, Greece government debt was 147.3% of its GDP
with maturing debt of $72.1 billion (Rady, 2012). This is compared to the EU’s
restrictions of budget deficits of no more than 3% of GDP and external debt of
no more than 60% of GDP (Rady, 2012). The author cites reasons for the problem
in Greece as:1) Improper economic policies of higher spending accompanied by lower revenues (Rady, 2012).
2) Poor trade policies of focusing Greece’s economy on the services sector (Rady, 2012). Services are the first thing cut when economies turn down (Rady, 2012).
3) Greece’s failure to remain internationally competitive with wage agreements raising nominal wages by 12% during a period of low inflation (Rady, 2012).
4) The 2008 global recession which cut demand for services provided by Greece which made getting more financial assistance more difficult (Rady, 2012).
5) the inability of Greece to devalue the Euro which would cheapen Greece’s debt (Rady, 2012).
The conclusion of this article is that, if Greece defaults on its debt, other southern European nations will be adversely affected (Rady, 2012). What is needed to prevent a default is tighter and stronger control by the EU, tax increases, and spending cuts (Rady, 2012). Greece also needs to promote the growth exports and more competitive wages (Rady, 2012).
