International Financial Management Assignment 2022

Running head: INTERNATIONAL FINANCIAL MANAGEMENT
INTERNATIONAL FINANCIAL MANAGEMENT
Name of the Student
Name of the University
Authors note

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Section 1: Grexit or not
Part 1
Greece was not a nation which is financially sound like other members of the European
Union. Earlier in 1981, Greece was a part of the European Union, but the budget deficit in the
hands of Greece did not qualify into the Eurozone. It was a sign that the budget deficit of Greece
was high, and they could not surpass the Maastricht Criteria set by Eurozone.
One of the major causes behind this huge budget deficit of Greece was it's pension
policies which backfired brutally. It led to the situation where they can not even pay the
pensioners properly now and multiple cuts to the pension amount paid.
When Greece became a part of the European Union in 2001, they had the most expensive
pension structure in the entire European Union. 17.5% of the GDP of Greece went into pension
expenses. Even though they were not financially sound, they have up 2.5% more of their GDP
into pension expenses than other countries of the European Union like Italy, France and Austria.
One of the primary reasons behind this considerable pension giveaway was the role politics
played and the incompetence of financial authorities to keep that under control. The trade unions
associated with the Military and Police collected huge pension benefits on and off the records.
As of now, the Government does not have enough funds to cover the pensioners of the country
even after multiple cuts in pension amount paid(Filippidis et al., 2017).
In addition to this, another reason behind the fall of the Greek economy was grand
corruption and collection of benefits like bonuses and other forms of payouts by government
employees. It was not just pension benefits, the funds with the Government was looted in kinds
of work bonuses and through different types of handouts too. Once again, it appears as the

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incompetence of financial authorities who could not keep their financial assets and expenses
under control.
Amidst all the conditions where government funds were being looted, another threat that
the Greek Government faced was the rising case of unemployment. It was not addressed well
enough by the Government and turned out to be one of the major causes behind the economic
crisis. More than half of the youth population of Greece is unemployed, and more than 25% of
the Greece population too is in search of jobs. It soon turned to chaos in the country and even
possessed a threat to the political system creating instability.
Another essential reason behind the economic crisis of Greece was the completely
incompetent tax system they had. The wealthy were the ones who evaded taxes and were
unquestionable. So it led to the loss of a considerable amount of tax money for the Government.
Adding to the crisis, the retirement age of the Greek citizens was 67 years. Still, many
government employees used this policy to their advantage and retired early for a reasonable sum
in the form of pension. The Greek Government failed to restrict this practice, and more
employees efficiently exploited this to fill their pockets.
Currently, the total national debt of Greece is 177% of its GDP, the most for a member of
the European Union. These factors played a crucial role in the deterioration of the Greek
economy and leading to an economic crisis in the country(Arampatzi 2017).
Part 2
Being a part of the European Union has backfired Greece horribly and the benefits they
reaped in the initial years, being a part of the European Union was not enough to cover the
damage.

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Unlike Greece, a lot of countries during the initial phase of being a member of the
European Union and during the transition phase to Euro as currency, have improved in every
sector of the economy. Greece was an exception among the other countries which attained
development by reaping the perks of being a member of the European Union. From 1980 through
2004, the members of the European Union had an average aggregate growth of 12% in their
GDP at their initial phase(Ikonomou 2018).
Greece enjoyed a lot of benefits once it adopted the Euro as its national currency. It
witnessed a remarkable growth in the number of incoming investments, mostly FDIs in their
country. Even though the dwindling market rates and hike in prices affected the public, it
provided loans and advances at unbelievably low-interest rates. It improved the flow of goods in
and out of the country.
There were signs of eradication of unemployment but sadly, Greece dug its own grave.
Inadequate and improper management of funds made the activities of monetary institutions
unstable. A massive increase in the borrowings and the funds borrowed were not put into best
and optimum use. The Government and financial bodies exercised no or little control over the
borrowings made, money exchange rates and interest rates on loans.
When The Government of Greece went bankrupt in 2012, the funds from the European
Union and International Monetary Fund helped them in paying off the interest. The regular flow
of funds from these institutions revived the banks of Greece who ran out of cash. The decision
was taken to recapitalize these banks with 10 to 25 billion euros per bank(McCormick 2017).
This helped Greece in controlling the chaos as the public were restricted from withdrawing more
than a certain amount of money. Even at the stage of massive unemployment, the political