Swinburne College – Swinburne University of Technology

Causal Analysis Essay

Name: Huyen Bui (Helen)

Class: EAP5.02

Topic: The cause of Greece Debt Crisis.

Debt crisis refers to a situation when a country is unable to pay its bills in

payment schedules, especially foreigner debts (Collin Dictionary online). This is a

huge problem for all nations including strong economies in the world and, in

Greece, it led Greece to go bankrupt and also to the European debt crisis. There

are two main causes of the Greek Depression in both domestic and international

factors.

Regarding domestic aspects, one of the main causes is higher public expenditure

along with budget deficit. A report by the Transparency International shows that

Greece is one of the countries that has the highest rate of corruption in the

European Union. According to Nelson, Belkin & Mix (2010, p. 373), compared

with other members of Organization for Economic Co-operation and

Development (called OECD), spending on public administration of Greek in 2004

was higher while service qualities have not improved. Although the Greek

economy decreased and federal revenue shrank, public debt figure in early 2011

was estimated at 216 billion dollars, and accumulated debt reached 160% when

comparing to GDP, was among the highest in Europe (Ozturk & Sozdemir, 2015,

p. 569). Furthermore, aging population and pension system of Greece, which are

the most generous kinds in Eurozone, are also regarded as a burden on

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spending budget. Nelson, Belkin & Mix (2010, p. 377) estimated that the total

amount payment to the retirement pension’s public sector will double by 2050,

account for 24% of GDP and retirement at 45 year instead of 60 as at present.

Moreover, as a result of tax evasion and shadow economy, decline of tax

revenue is also a factor causing the budget deficit and increasing of public debt.

High wages, rising of the euro, high tax rates, complicated laws regulating

alongside the redundancy and authority inefficiency contributed to weaken the

Greek economy.

Considering global perspectives, increased access to foreign investment and the

inefficiency of using capital are the second cause. Nelson, Belkin & Mix (2010, p.

374) reported joining in the Eurozone in 2001 was a great opportunity for Greece

to access international capital markets by using the euro as its national currency

because this currency is ensured by large economies such as Germany, France

and monetary policy’s management of the European Central Bank. Thus, Greece

automatically has obtained a favourable image of stability in the eyes of investors

that is easy to attract foreign investments at low interest rates. Furthermore, for

nearly a decade, Greek government has been selling bonds constantly to earn

hundreds billion of dollars. This money would have helped the Greek economy

developing if the government spent sensibly. However, the Greek government

has spent almost money on infrastructure (Olympic Athens 2004) and scarcely

interested in the plan of redemption.

Word count: 454

Reference:
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Ozturk, S & Sozdemir, A 2015, 'Effects of Global Financial Crisis on Greece

Economy', Procedia Economics and Finance, vol. 23, pp. 568-575.

Nelson, R, Belkin, P & Mix, D 2010, 'Greece's debt crisis: overview, policy

responses and implications', Journal of Current Issues in Finance, Business

and Economics, vol. 4(4), pp. 371-392.