Macroeconomic Analysis of the Greek Debt

1. Why heavy government debt may trigger economic slump? Collect data of your own country to show the percentage of government debt to your country’s GDP and discuss how serious the problem and the major cause of the problem.

Country | Public debt in billion USD | Public debt % of GDP in 2012 | Public debt % of World in 2012 |

Greece | 436 | 161,3 | 0,77 |

The Greek government-debt crisis was triggered by the arrival of the world economy recession in October 2008. It has been caused by a combination of factors:

* The surge subprime mortgage loans, from 9% estimated in 2003 to 24% in 2007. The banks provided mortgage loans with appealing low interest rate to insolvent citizens who shouldn’t have gotten them to begin with.

* The low competitiveness, the high salaries and bureaucracy and the high governmental spending to non-growth sectors, such as military.

* The ineffective Tax Collection System and the governmental policies of drastic reduce of the taxes’ incomes that the Greek governments followed for more than a decade before the crisis, in addition with the current increase governmental expenditures of 87% against an increase of only 31% in tax revenues.

The financial policies of the past 30 years brought Greece in the verge of bankruptcy. Innovations that were implemented in other European countries, many years ago, are constantly suspended in Greece. As a result the country keeps back, cannot grow and is being burdened by an unproductive public sector and an inefficient tax system, an unsustainable pension scheme and an ineffective regulatory framework in economy, whose competitiveness is reducing constantly.

2. Please read each of the following 40 statements about the America’s decline and judge whether it is true or false. Briefly explain.

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