Greece's Sovereign Debt Crisis
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Case Code: ECON035 Case Length: 16 Pages Period: 2004-2010 Pub Date: 2011 Teaching Note: Not Available |
Price: Rs.400 Organization : - Industry : - Countries : Greece, Europe Themes: Economics |
Abstract Case Intro 1 Excerpts
Greece's Sovereign Debt Crisis
When Greece disclosed that it had a foreign debt of about 125% of GDP in 2008-09, it took prominent economists and global political figures alike by surprise as the Greek authorities had kept the fact under wraps for a long time. Soon after the disclosure, the debt problem became aggravated into a sovereign debt crisis. Many economists opined that the main cause for the problem was the huge non-productive expenditure incurred on the 2004 Olympics and the false accounting of the budget report during the period 1999-2008. To help Greece overcome the debt crisis, both IMF and European Union (EU) countries extended a rescue loan of €110 billion to the country. However, economists wondered whether the quantum of the rescue loan would be sufficient for the Greek economy to pull itself out of the debt crisis...
Growth of Greece
The Ancient Greek Civilization flourished during the period 776 BC to 36 BC, in what were termed the Archaic (776-480), Classical (480-323), and Hellenistic (323-30) periods. During the Archaic and Classical periods, Greece was comprised of many "Polis" or city-states. Around 6th century BC, Athens emerged as a new state with mammoth economic powers. During this period, wealth increased with the findings of several layers of silver in the mountain areas and with improvement in trade with other neighboring countries. However, agriculture, the staple for the economy, was unstable in Athens.3 The major crop was wheat and inadequacies in farm management resulted in a steady decline in the production of the crop. Also, as the wealthy and rich imported wheat from other countries, the price of wheat in Athens declined, leaving the domestic farmers with heavy losses and eventually leading them into a debt trap. The farmers, mired in debt, had no alternative but to sell themselves as slaves to the wealthy.
The problem of slavery and debt was finally solved thanks to the reforms given by Solon4 in 594 BC. Solon cancelled all outstanding debts, freed farmers from slavery, and declared that providing loans with human beings used as collateral was illegal. He encouraged cultivation of olive and wine to save farmers from losses.5 In 205 BC, Greece was taken over by the Great Roman Empire. Since then, the country came under the Romans (146BC-400AD), the Byzantine Empire (400AD-1453), and the Ottoman Turks (1453-1827).6 The Romans from 275BC started to expand their empire by conquering other parts of the Mediterranean. During the Roman war with the Carthaginians,7 the Greeks fought on the side of the Carthaginians...
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