University Essay: Analysis of the Greek Financial Crisis

This academic essay provides a detailed analysis of the Greek financial crisis, examining its origins, the chronological development since Greece joined the EU, and the implementation of austerity measures. The essay delves into the challenges faced by Greece, including fiscal deficits and prolonged recession, and questions the effectiveness of austerity as a solution to the sovereign debt crisis. It explores the gap between ex-ante and ex-post austerity measures, highlighting the failure of a one-dimensional approach and suggesting the need for a multidisciplinary approach to address the crisis. The paper also critiques the Greek accounting system and its role in exacerbating the crisis, while comparing the expected outcomes of austerity with the actual results. The essay concludes by emphasizing the limitations of austerity and the importance of considering broader economic and societal reforms to deal with the multifaceted nature of the debt crisis.

Running head: ACADEMIC ESSAY ON THE FINANCIAL CRISIS IN GREECE
Academic Essay on the Financial Crisis of Greece
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ACADEMIC ESSAY ON THE FINANCIAL CRISIS IN GREECE 1
Table of Contents
Introduction......................................................................................................................................2
Chronological development since Greece joins EU........................................................................3
The solution of austerity to the Greek debt crisis: ex-ante and ex-post austerity measures............5
Conclusion.......................................................................................................................................7
Reference List..................................................................................................................................8

ACADEMIC ESSAY ON THE FINANCIAL CRISIS IN GREECE 2
Introduction
Since the era of ancient Greece austerity has always been of a point of attraction of the
political and economic arguments. Presently the term austerity is used to refer to the instance of
reducing public spending. However, a group of researchers have argued that using the term is
such a leads to a misconception and the main rationale of austerity remains unfocused. These
researchers have pointed out the main rationale of austerity as to reinstate the financial condition
of the government in order to achieve economic competitiveness and efficiency (Alogoskoufis,
2012). Accounting for austerity in the context of public sector accounting has not been given
sufficient attention by researchers especially in Greece the country which is most harshly treated
by the EU. This paper depicts a series of challenges and critical implications of austerity policies
for public sector accounting (Mertzanis, 2011). Austerity has been used as a measure to solve the
sovereign debt crisis of Greece. The financial crisis came into the center of attention of the
international market after the October, 2009 elections. The fiscal deficit of the country worsened
more with the passage of time and the same happened with several other countries within the
Eurozone (Maggina, 2011). However, after a few years of significant economic growth during
2009, Greece entered into a situation of prolonged recession and has not been able to completely
cope with the situation till date. Policy makers decided to use austerity as a measure to solve the
economic crisis in the country but failed miserably. In this context it is argued that the sovereign
debt crisis of Greece is a multi-dimensional concept for which a one-dimensional measure of
austerity was not substantial. The key purpose of this paper is threefold, firstly, it will try to
unveil the problems for which the government decided to call for an urgent bailout, secondly, it
will determine the gap between the ex-ante and ex-post austerity measures and finally the paper
will shed light on why a one-dimensional austerity measure failed. This research paper will

ACADEMIC ESSAY ON THE FINANCIAL CRISIS IN GREECE 3
attempt to substantiate this statement and for this purpose two relevant research questions have
been developed. The first research question is How the Greek debt crisis was dealt with in fact?
While the second one is How the Greek debt crisis should have been dealt with?
The findings of the paper suggests that austerity measure has not been able to solve the
debt crisis of Greece and it failed because of several reasons. On the other hand, a
multidisciplinary approach such as educational, political and societal approach would have been
helpful.
Chronological development since Greece joins EU
During the first few months of the year 2010, the economy of Greece has turned out to be
the first casualty of the debt crisis. The debt crisis threatened to put the euro area into greater risk
and also destabilized the recovery of the European Union from the 2009 crisis (Bracci et al.,
2015).
The international attention turned towards the Greek economy after the elections of 2009.
During the crisis fiscal deficit of the country worsened and the same was the case with various
other countries within the Eurozone. It is important to note that the global financial crisis
affected the Greek economy during 2008 and it affected the refinancing process of the public
debt generated in the 1980s. However, it is also quite evident that the fundamentals of the Greek
economy improved during the past twenty years till 2008 (Amygdalos et al., 2014). This is
because the country was preparing to enter into the Eurozone. As the entry of Greece, financial
situation and international competitiveness remained at a subsistence level. The fiscal situation
of the country depicted improvements in the short periods however, there are instances of relapse
as well especially during the time of elections (Bosco & Verney, 2012). From the literature

ACADEMIC ESSAY ON THE FINANCIAL CRISIS IN GREECE 4
available in this regard it can be stated that problems were emerging in the Greece economy long
before the international financial crisis hit the country. The chronological development of the
country along with the financial conditions can be stated as follows,
Greece was adversely affected by the 1970s first oil shock, but the country ensured a
speedy recovery (Pavlatos & Kostakis, 2015). Democracy was further restored in the year 1974,
after a seven long years of dictatorship Greece opted to enter the EEC in the year 1975.
However, accompanied by the second oil shock, entering into the EEC during 1981 and
implementing a socialist government at the same tine Greece entered into a state of stagflation
and public debt accumulated rapidly which lasted during the 1980s (Chalari, 2016).
However, during 1990s another significant change in the government of Greece took
place. The country initiated a structural consolidation program and implemented a structural
reform (Soll, 2015). This was solely due to participate in a single European cut and it entered
into the Euro area in the year 2000. Economic growth started to develop since 1990s, inflation
also normalized and public debt also stabilized relative to the Gross Domestic Product.
The period of Euro participation that is the period between 2001 to 2008 can be
considered as the golden time of the economy of Greece. During this time growth rate further
increased, inflation reduced though it was a bit higher than that of the euro area average at the
same time unemployment also fell (Koulouris et al., 2014). The public debt to GDP ratio
stabilized at that point of time and solvency was no more a problem for the country.
The government finance further worsened. Despite of the huge improvement that Greece
had made, the mistakes it did in the pre-euro period started to obstruct and budget deficit started
to increase. Then emerged the crisis, the debt levels which remained significantly high and that

ACADEMIC ESSAY ON THE FINANCIAL CRISIS IN GREECE 5
attracted the attention of the investors. This weakened the growth of the economy during 2008.
Then the Greek government expressed its interest towards developing the economic statistics of
the country (Liapis & Spanos, 2015). The deficit in 2009 was actually found to be 12.6% which
was worse than that of the 6% of GDP that was declared previously. Hence the investors started
regarding Greece as not creditworthy as Germany. Hence the value of German bonds started
soaring and the crisis emerged intricately.
The accounting system of Greece was not working properly at that point of time and this
can be considered as the prime reason behind this crisis. The weak tradition of accounting in
Greece and hence it needed to improve its accounting standards. The government of Greece does
not make use of the International Public Sector Accounting Standards or IPSAS (Morales et al.,
2014). This specific method measures liabilities and assets over time. Similar type of accounting
standards are being used by the leading governments, banks, businesses and investors all over the
world (Mertzanis, 2011). The basic problem with the Greek accounting system is that it has
measured the debt larger than it actually was.
The solution of austerity to the Greek debt crisis: ex-ante and ex-post austerity measures
The austerity measure adopted by the Greek government was it agreed to follow a
structural reform and five years program of adjusting the fiscal structure. Primary measures
aimed at reducing the budget deficit by five percent of the gross domestic product in the year
2010 and by another four points during 2011. Greece was required to reduce the fiscal deficit by
3% of the GDO by the end of the year 2014 (Ozturk & Sozdemir, 2015).

ACADEMIC ESSAY ON THE FINANCIAL CRISIS IN GREECE 6
The Greek austerity measure had two basic aims which were restoration of the
sustainability of the fiscal situation of Greece and to improve the competitiveness of the Greek
economy.
The adjustment program was received twice in 2010 because of the insufficient fiscal
adjustment and another adjustment was for establishing the revision of the fiscal accounts of
Greece. The first revision was enacted after the decision was made during 2010 to incorporate
the public enterprises within the general accounts of the government (Alogoskoufis, 2012). The
second revision took place after the decision was taken during 2011. However, despite the
revisions of the program it still followed the old principles.
The fiscal adjustment policy was planned to be implemented in a condition of decreasing
GDP and drastically increasing unemployment. As per the second revision of the fiscal
adjustment program the deficit on the part of the general government was expected to decrease
from 15.4% of GDP during 2009 to nearly 2.6% of GDP during 2014. Although it has been
projected that the debt to GDP ratio will increase to 153% of GDP in 2014 from 127.1% during
2009 (Alogoskoufis, 2012). This is only because of the existence of negative differential between
real rate of interest and growth rate. It was further expected that Greece would continue to have
primary deficits until 2011. In the fourth or fifth year of the program the country expects to
possess a primary surplus.
However the ex-post austerity scenario was quite different from the expected one. The
adjustment on the part of the primary deficit was found to be 16.4% of the GDP (Beshenov &
Rozmainsky, 2015). The adjustment was concerned about two sub-periods 2010-11 and 2013-14
was just a correction of the electoral of 2009 while the revenue of the government collapsed and

ACADEMIC ESSAY ON THE FINANCIAL CRISIS IN GREECE 7
primary expenditures shot up primarily. The adjustment implemented for 2013-14 was for the
expectation of obtaining a recovery from the prolonged recession (Maggina, 2011).
The fiscal adjustment possessed a negative influence over GDP growth as well and hence
refuted the original purpose of the plan. The domestic demand was expected to decrease by 7.7%
during 2010 and by 6% during 2011 (Arampatzi, 2017). The biggest negative contribution came
from the part of the government consumption expenditure and the formation of gross fixed
capital (Pavlatos & Kostakis, 2015).
Conclusion
In order to draw a plausible conclusion of the research paper it can be stated that austerity
is just a one dimensional measure which is insufficient to deal with the multidimensional debt
crisis. Reducing the spending on the part of the consumers will not just solve the issue of crisis
as this was not only because of the single sector, education, societal reforms and other related
sectors must be reformed to deal with such a deep crisis. The accounting methods used by the
country was wrongfully designed it could have been improved. However, austerity only cannot
be held responsible for the entire outcome. In order to deal with the sovereign crisis it is
mandatory to look after the various other segments of the economy which will in turn help to
cope with the situation.

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Reference List
Alogoskoufis, G. (2012). Greece’s Sovereign Debt Crisis: Retrospect and Prospect. GreeSE
paper, 54.
Amygdalos, C., Bara, N. & Moisiadis, G. (2014). Performance Appraisal in Greek Public Sector.
Procedia Social and Behavioral Sciences, 148, 501-506.
Arampatzi, A. (2017). Contentious spatialities in an era of austerity: Everyday politics and
‘struggle communities’ in Athens, Greece. Political Geography, 60, 47-56.
Beshenov, S. & Rozmainsky, I. (2015). Hyman Minsky’s financial instability hypothesis and the
Greek debt crisis. Russian Journal of Economics, 1, 419-438.
Bosco, A., & Verney, S. (2012) Electoral Epidemic: The Political Cost of Economic Crisis in
Southern Europe, 2010–11. South European Society and Politics, 17(2), 129-154.
Chalari, M. (2016). Crisis, Austerity and its Impact on Education in Europe and Greece. Educate
Journal, 16(1), 15-24.
Koulouris, A., Moniarou-Papaconstantinou, V. & Kyriaki-Manessi, D. (2014). Austerity
Measures in Greece and their Impact on Higher Education. Procedia Social and
Behavioral Sciences, 147, 518-526.
Liapis, K. & Spanos, P. (2015). Public accounting analysis under budgeting and controlling
process: the Greek evidence. Procedia Economics and Finance, 33, 103-120.
Maggina, A. (2011). Public Sector Accounting and Accountability in Greece: A Discussion.
Journal of Public Administration and Governance, 1(1), 1-15.

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Mertzanis, H. (2011). The effectiveness of corporate governance policy in Greece. Journa l of
Financial Regulation and Compliance, 19(3), 222-243.
Morales, J., Gendron, Y. & Guénin-Paracini, H. (2014). State privatization and the unrelenting
expansion of neoliberalism: the case of the Greek financial crisis. Critical Perspectives on
Accounting, 25(6), 423-445.
Ozturk, S. & Sozdemir, A. (2015). Effects of Global Financial Crisis on Greece Economy.
Procedia Economics and Finance, 23, 568–575.
Pavlatos, O. & Kostakis, H. (2015). Management accounting practices before and during
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Soll, J. (2015). Greece’s accounting problem. The New York Times, New York, NY, available
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