Global Financial Crisis: Causes, Impacts, and Government Responses

This report examines the global financial crisis, focusing on its common causes, with specific attention to the 2007-2009 crisis. It identifies deregulation, risk-taking, and policy errors as key factors. The report then analyzes the impact of the crisis on Greece, comparing it with the US economy, highlighting the effects on GDP, unemployment, and government debt. It also details the responses of both the Greek and US governments, including fiscal measures and regulatory proposals. Finally, the report assesses the current economic situations of both countries within the global economy, presenting recent GDP growth rates and economic standings, concluding that subprime mortgage crises were major issues. The report draws on several scholarly sources to support its findings.

International Economics
Student name:
2/6/2020

International Economics 1
Contents
Introduction................................................................................................................................2
Common causes of global financial crises.................................................................................2
Specific causes of 2007-2009 GFC............................................................................................2
The financial crisis affected Greece...........................................................................................3
Comparison between the US and Greece...............................................................................3
Country’s government responded to the crisis.......................................................................5
Country’s current economic situation within the world economy.........................................6
Conclusion..................................................................................................................................6
References..................................................................................................................................7

International Economics 2
Introduction
The global financial crisis refers to time period of the dangerous stress that is present in the
monetary marketplaces as well as in the banking systems in the mid of 2007 and early 2009.
During the duration of the GFC, there was a different issue that has been witnessed by
different countries. The paper aims to explain mutual reasons of the global financial crises
with the examination of the particular cause of 2007-2009 GFC. The country that has been
selected for the evaluation is Greece other than the U.S. The comparison of the impact on
2007-2009 GFC on Greece and the US economy has been done. The thesis statement of the
paper is to determine reasons and belongings of the global financial crisis paper on Greece.
Common reasons of global financial crises (GFC)
The global financial crises majorly caused due to deregulation in monetary industry. It
permits the bank to get involve in hedge account interchange with products. The major causes
include extreme risk-taking in a favorable macroeconomic atmosphere, regulations, and
errors in policy, pressures in the monetary method, spillovers to further nations and many
others (Reserve Bank of Australia, 2020).
Specific causes of 2007-2009 GFC
The specific causes of 2007-2009 global are subprime mortgage crises. In the research, it has
been determined clearly that 2007 financial crisis is considered as failure of the faith that
might arise among banks and the year early to 2008 monetary crises (Amadeo, 2020). The
subprime mortgage crisis is the reason behind the crisis which is majorly affected by
unregulated usage of the derivatives. The banks permitted to get engaged in the hedge fund
for conducting trading with the derivatives (Amadeo, 2019).

International Economics 3
Financial crisis affected Greece
In the year 2007, financial crisis begins in US rapidly extended a worldwide aspect by
affecting different advanced as well as developing nations. In research, it has been witnessed
that the effect of the crisis was specifically more profound as well as destructive in some
countries and among that one of the countries is Greece. In the research, this has been
witnessed that the financial crisis leads to the rise in the public debts of different countries
since the year 2008 (Gourinchas, Philippon & Vayanos, 2017).
Comparison between the US and Greece
It is essential to consider the fact that the crises have twisted into a severe obligation crisis
that mainly arises in Europe. In addition to this, the market of Europe is considered as one of
the uncertain markets which affect the future to the most. The problems are faced by the US
are identified related to the financial policies. On the other hand, it has been found in terms of
Greece the influence of the crisis is related to instability, unreliable political institutions,
insufficiency and many others (Ahmed, Al-Gasaymeh & Mehmood, 2017).
GFC affected the economy of Greece which is clear evidence from mixture of the high
charges of the commercial deficit as well as debts to GDP. It has been witnessed that the
Greece found that shrinking of the tax base as well as the dysfunctional tax collection system
that improved fragility as well as liquidity crunch in the economy of Greece (Ozturk &
Sozdemir, 2015). The research reflects that this crisis not only contributed to the acceleration
of exploitation in the economy but it is similarly exposed chronic faults in it.
One of greatest problems Greece has experience in the current yeas is a decline in the revenue
of tax of the government. The revenue from the tax has perpetually declined as per lower
expectations. In addition, Greece faced the issue in terms of the GDP which decline the most
comparing it with the other countries and different years.

International Economics 4
The present account balance that is the degree of -7% of GDP in year 2001 with influence of
the weakening in affordability that understood as level of -15% of GDP in year 2008 which
shows the major decline in the GDP of the country (Ozturk & Sozdemir, 2015).
Comparing it with the US, the results of the Great recession reflect that the US alone sheds
more than 8.7 million jobs as per the US Bureau of Labor Statistics, which double the rate of
unemployment. The global financial crisis for the years 2007 and 2008 shows that there was
1.9% of the GDP growth which is quite less because of the bank crisis (Euromonitor
International, 2020). In 2008, the GDP growth rate was -0.1% due to the financial crises and
it declines more in 2009 as it is evident with -2.5%.
Country’s government responded to the crisis
Once government identified importance of event as well as scope of difficult, administration
of Greece was emphasized to implement a plan to save budget of Greek by IMF and EU
(Zestos, 2015). The government of Greek agreed for 3 years as well as 110 billion euros plan
include 80 billion funded by EU as well as 30 billion by the IMF. The motive behind the
recovery plan is to understanding of improved variety of VAT, rise in indirect duties in
alcohol and oil, cigarette and many others. The second recovery plan includes the 110 billion
dollars that are subsidized by the IMF and EU which help in restricting the private sector.
Considering the condition of the US, Federal Reserve, Treasury and Securities, and Exchange
Commission took the different steps to deal with the issue (Karanikolos, Heino, McKee,
Stuckler & Legido-Quigley, 2016). The treasury announced for new $50 billion programs
through which they can ensure the investments. In the year 2008, United States Congress
approved and then Bush employed Economic stimulus Act of 2008 with a $152 billion
stimulus intended to assists board off a recession. The key advisors of the government
initiated a series of regulatory proposals.

International Economics 5
Country’s current economic situation within the world economy
Presently, it has been witnessed that the US has booked its location of being among world's
major economy since year 1871. The research shows that size of U.S. economy was $20.58
trillion in the year 2018 and is predicted to reach $22.32 trillion in the year 2020 (Amadeo,
2020). On the other hand, it is witnessed that Greece has attained a real GDP growth rate of
0.7% in 2014. The country growth returned from 2017 with 1.5% of GDP and 1.9% in 2018.
The economy of Greece stands at the 51st largest in world.
Conclusion
At the end of the report, it is concluded that global financial crises occur generally due to
different reasons. The major reasons behind the GFC for the years 2007-2009 are discussed
which shows that subprime mortgage crises are major issues. The financial crisis affected
Greece and there is a comparison between Greece and the US which is discussed in this
paper. The responses of the government and the current situation of the country's economy
are discussed.

International Economics 6
References
Ahmed, G., Al-Gasaymeh, A., & Mehmood, T. (2017). The global financial crisis and
international trade. Asian Economic and Financial Review, 7(6), 600.
[Link: http://www.aessweb.com/pdf-files/AEFR-2017-7(6)-600-610.pdf]
Amadeo, K. (2019). Causes of the 2008 Global Financial Crisis. Retrieved from:
https://www.thebalance.com/what-caused-2008-global-financial-crisis-3306176
Amadeo, K. (2020). 2007 Financial Crisis Explanation, Causes, and Timeline. Retrieved
from: https://www.thebalance.com/2007-financial-crisis-overview-3306138
Euromonitor International. (2020). Global Economy 10 Years after the Financial Crisis.
Retrieved from: https://blog.euromonitor.com/global-economy-10-years-after-
financial-crisis/
Gourinchas, P. O., Philippon, T., & Vayanos, D. (2017). The analytics of the Greek
crisis. NBER macroeconomics Annual, 31(1), 1-81.
[Link: https://www.journals.uchicago.edu/doi/pdfplus/10.1086/690239]
Karanikolos, M., Heino, P., McKee, M., Stuckler, D., & Legido-Quigley, H. (2016). Effects
of the global financial crisis on health in high-income OECD countries: a narrative
review. International journal of health services, 46(2), 208-240.
[Link: https://repub.eur.nl/pub/110571/110571_Chapter_4-
Effects_of_the_Global_Financial_Crisis_o.pdf]
Ozturkª, S., & Sozdemirᵇ, A. (2015). Effects of global financial crisis on Greece
economy. Procedia Economics and finance, 23, 568-575.

International Economics 7
[Link: https://www.researchgate.net/profile/Serdar_Oeztuerk2/publication/
282555057_Effects_of_Global_Financial_Crisis_on_Greece_Economy/links/
568c129608ae153299b63c6c.pdf]
Reserve Bank of Australia. (2020). The Global Financial Crisis. Retrieved from:
https://www.rba.gov.au/education/resources/explainers/the-global-financial-
crisis.html
Trading Economics. (2020). Greece GDP. Retrieved from:
https://tradingeconomics.com/greece/gdp
Zestos, G. K. (2015). The global financial crisis: from US subprime mortgages to European
sovereign debt. Routledge.
[Link: https://content.taylorfrancis.com/books/download?dac=C2014-0-30123-
6&isbn=9781317627647&format=googlePreviewPdf]