‘Athens in Flames: A result of recession or bad politics?

Tuesday, 27 August 2013 00:00 -     - {{hitsCtrl.values.hits}}

By Venuk Ganearachchi ‘Athens in Flames’ was the term used by the Atlantic magazine, one of the most reputed magazines in America, to describe the plight of Greece; and the negative state of its economy over the past few years. As the picture indicates, the Police, a symbol of order and justice, are attacked during violent protests which took place during the years 2010 to the end of 2012. Contrary to what the above picture signifies, Greece is actually one of the most highly developed countries in the world, with a Human Development Index figure of 0.860 and a ranking of 29 out of 187 countries. Human Development Index or HDI takes into account several factors such as life expectancy rates as well as education and income indices. All of these qualitative factors indeed tell us that Greece is highly developed, further emphasized by the UN classifying Greece into the ‘high income’ category. How did an economy like Greece, which has been known to perform quite well end up in such a sad state though? There may be several different factors involved, however in my opinion it was a combination of both the global recession as well as mismanagement by the Greek Government that left the economy in such a dire situation. First of all let’s define what the term ‘recession’ means. A recession basically implies that an economy is experiencing falling output or GDP (Gross Domestic Product) over two quarters, which is six months. The global recession not only adversely affected Greece but it also affected a multitude of countries all over the world such as Spain, England and the US. It was due to this specific reason that one of Greece’s key areas of trade, tourism, which accounts for nearly 15% of Greece’s $ 290 billion dollar economy, was devastated. Economic mismanagement by the Greek government was yet another major factor which contributed to Greece’s bad fortune. Throughout the majority of the 20th century Greece had one of the highest economic growth rates in the world, second only to Japan, this is not exactly a bad thing but as their income increased expenditure rose with it. Expenditure continued to increase at a rapid rate. What’s worse is that the Greek Government had, in the years before the crisis of 2008, been on a binge of unrestrained spending and excessive borrowing and with the sudden fall in income, it was caught on the wrong foot. It simply did not have the money to re-pay their loans and was forced to default on the debt it owed. If the Greek government at the time had made wiser choices under their tenure, Greece quite possibly may not have been the most indebted nation in the world that it is today. As of now Greece has lost its economic sovereignty and is under the influence and power of the International Monetary Fund and certain Euro area member states  as it has to abide by its ‘austerity measures’ and bailout targets since Greece accepted their 130 billion euro loan. These ‘austerity measures,’ which are the result of an Economic Adjustment Programme included massive spending cuts which have further fuelled unemployment in Greece, where unemployment is at a record high of about 27.4%. In the words of the Economic and Financial affairs department of the European Commission the aim of this programme is to ‘support the Greek Government’s efforts to restore fiscal sustainability and to implement structural reforms in order to improve the competitiveness of the economy, thereby laying the foundations for sustainable economic growth’. This loan was approved by Euro area finance ministers on 14 March 2012. Nearly a year and a half later the economy seems to have recovered only by a trivial amount, far from solving the numerous problems it has right now, among them, The Guardian reports that 50% of businesses in Greece commit tax fraud. This is certainly a big problem for the Greek government, as taxes from businesses may be a huge source of income and will definitely help to a great extent. So what is Greece doing to combat the fate of their deteriorating economy? Right now they simply cannot do anything. They have to abide by the austerity measures fuelled by their debt-driven economic crisis; this includes the massive spending cuts which have led to thousands of layoffs all over Greece. President Barack Obama himself has told Greek Prime minister Antonis Samaras that spending cuts alone will not suffice according to The New York Times. In the face of an event of such great magnitude, even Greece, once the pinnacle of Western civilisation is forced to bow down. One of the only possible options that Greece might have taken in order to save their economy was to drop the Euro by leaving the Eurozone and devaluing their own currency, the Drachma. This would have made most of their industries far more competitive such as the tourism industry for example, which is one of biggest Greek industries therefore increasing demand for Greek products. Instead however the Greek Government opted to default, the effects of which will be seen for years to come.