The Greek Debt Crisis: Causes, Impact and Resolution

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Introduction

Greece is a democratic, high income and developed country from the European continent with the 44th highest GDP and the 29nd highest HDI in the world. According to the International Monetary Fund, Greece’s GDP for fiscal year 2012 was USD 266 billion. The service sector accounts the largest chunk of it at 78% that includes the public and tourism sector. The industrial sector contributes to 18% of Greece’s GDP. Greece’s agricultural sector contributes a mere 4%, as shown in Figure below:

Source: The World Fact book, www.cia.gov.in – Greece (2012)

Source: The World Fact book, www.cia.gov.in – Greece (2012)

The workforce composition is also shown above. It must be pointed that the agricultural sector though corners a significant 20% of the entire workforce but accounts only for 4% of the Greek GDP implying vast income inequalities.

Greece has a history of financial trouble with high debt, endemic corruption and tax evasion. However, things took the turn for the worse in 2008 in the aftermath of the global financial crisis when the country faced a full-blown sovereign debt crisis.

Causes

The Greece economic crisis has been caused in varying parts and with varying significance by a number of factors. The key reasons for the Greek economic crisis can be identified as – Greece’s entry into the Eurozone in spite of its inherent inadequacies; insufficient tax base and reckless government spending coupled with corruption.

Greece officially adopted the Euro and became a part of the Eurozone in 2001. Becoming a member of the Eurozone required countries to meet specific criterion called the Maastricht convergence criteria. However at the time of its admission to the Eurozone, Greece was nowhere close to meeting th...

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