Reasons for Greece's economic crises

Greece has a long history of fiscal troubles and their public finance governance and bad management of finance has caused for the economic crises in the present. Both fiscal and governmental corruption and continuous tax evasion has led to highly unstable of its economy.

Greece economic crises can be considered as risen because with the following cases,

1.      The Euro zone

2.      Mass tax evasion

3.      The corruptions of Government

4.      Inefficient Government expenses

Greece has entered into Eurozone in 2001 and in order to enter into the Eurozone, the countries had to fulfill some requirements called as “Maastricht Convergence Criteria”

What are the convergences Criteria?

The Convergence criteria are formally defined as set of macroeconomic indicators. They are,

·        - Price stability

·         -Sound and sustainability of public finance(Through limits the gov. borrowings and national debt to avoid trade deficit)

·         -Exchange rate stability

·         -Long-term interest rates                                      

                                                                                     

What to  Measure	Public Stability	Sound in public finance	National debt
How to Measure	Consumer price inflation rate	Gov. deficit as % of GDP	National debt to GDP
Convergence criteria	Not more than 1.5 percent.	Reference relating not more than 3% of GDP	National public debt not exceeding 60% of GDP

Long term interest rates -  No more than two percentage points above rates in the three EU countries with lowest inflation over previous year.

It    It was required to enter EU 60% of public debt to GDP, but in Greece it was actually 126.4% and Greece was one of the weaker country in the EU. And also its major revenue points also fall by 15% In 2009. And also a significant portion of gov expenditure which was allocated for public sector wages and benefit also cause for this economic crises. 

I  In 1995 – 2015 time periods, the highest Gov. expenditure was 13804.5 EUR Million and the lowest amount was 7740.9. So this gov high expenditure may really cause for this economic crisis and we can compare Greece gov expenditure to GDP with the other EU countries as follows and then we can clearly identify how this gov expenditure causes for this crisis. 

And Greece’s amount of debts also caused for this disaster,

Gov debt to GDP in Greece          (In amount EUR Mn)

·         Last – 177.1                                 312701.69

·         Previous – 175                             324127.88

·         Highest – 177.1                            367978.00

·         Lowest – 22.6                               215415.74

   After it adopted single currency in 2001, it gained monetary stability in Greece and was able to borrow money at lowest interest rate and their borrowing habit could not be stopped. This caused to raise debt amount in Greece. 

Government main income source is Tax income. In Greece ,while gov. expenditure rising Tax income got weak. There was high tax evasion and it was caused to tax income reduced. Greece personal tax rate was 46 percent. From 1995 to 2014, average tax percentage was 49%. Greece’s income tax rate behaves like following in the previous years.

According to the above data, we can see that the income tax rates have been gradually increasing. People are not always willing to bear a higher tax burden and so they may refuse to pay taxes. And also by analyzing previous year’s data, we can see that Greece per ca-pita income has been reducing and therefore they had to bear high tax burden and then they avoid paying taxes. This is the most reason incident for the tax evasion.

Even from 2006 to 2009 the GDP raises, after 2010 it has gradually reduced and also general price level also increased. But the tax rate has gradually increased so people had to bear a heavy tax burden.