US Economy

2/20/2012

There are many economic issues facing nations of the EU. Investigate what is happening and apply economic analysis to support your information.

Some questions to contemplate: Europe is facing a debt crisis. What is the problem, how is that impacting specific European nations such as Greece? http://www.reuters.com/places/greece What is an austerity policy? How will it impact Greece's economy? What do the Greek people think of the plan? What other nations face similiar debt issues?

12 Comments

Heather Halvorsen

2/23/2012 11:42:11 am

Greece first started seeing trouble when George Papandreou became prime minister in 2009. "Greece went on a spending spree on infrastructure, services and public sector wages. Meanwhile, the Greeks stopped paying taxes. To Athens’ delight, banks and the financial markets filled the gap by lending billions of euros. With the onslaught of the credit crunch, Greece’s vast debts were exposed - but so was the exposure of European banks. If Greece went bust, untold damage could be unleashed across Europe and beyond: for a global economy still shattered from the 2008 banking crisis, the prospect of another one was intolerable." (http://www.telegraph.co.uk/finance/financialcrisis/9098559/Whats-the-Greek-debt-crisis-all-about.html) When the Greeks stopped paying taxes, they were experiencing expansionary fiscal policy. This led to a budget deficit and Greece is having trouble coming out of debt.

Thomas Tenner

2/23/2012 02:54:24 pm

The European debt crisis has resulted from a many factors, including easy credit conditions that encouraged high-risk lending and borrowing practices, international trade imbalances; real-estate bubbles that have since burst, slow economic growth since 2008, and bad government fiscal policies.
Greece has been a main talking point of this recession, because it has arguably been hit the hardest. In the early-mid 2000's, Greece was sporting a strong economy. Their government took advantage of this, and created a large deficit, specifically with defense spending. During the late 2000s, as the world economy slow, Greece was hard hit because its main industries - shipping and tourism - were hit especially hard by the business cycle.
An austerity policy is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided. This has negatively affected Greece, and has been widely criticized. It has been said to "destroy Greek society," as the reduced government spending has been crippling on their society.
This following site highlights just why the austerity policy has so strongly affected Greece. http://www.commondreams.org/headline/2012/02/02-2
Nations facing similar debt issues are Italy and eastern European countries surrounding Greece.
Other larger nations such as France and Germany seem to be pulling out of the recession.

Amy Kukacka link

2/26/2012 07:23:05 am

Austerity policies are often used by governments in order to reduce their deficit spending, and sometimes increasing taxes to pay back creditors to reduce debt is paired with that. This article tells about how in Greece the vote on the austerity measure was passed earlier this week. The measures include a 22% cut in benchmark minimum wages, and 150,000 government layoffs within the next 3 years. Those numbers caused alot of bitterness because of the 5 year recession Greece has been in, along with the 21% unemployment rate that is rising. The economy is expected to worsen with more austeritys passed.
The country is facing trade and budget deficits that are going to be a struggle to get out of. None of the big banks in Europe are wanting to give them loans and help them out because of all of the problems they are enduring, that dont seem to be prospected to get better very soon.

Amy Kukacka

2/26/2012 07:25:05 am

http://www.nytimes.com/2012/02/13/world/europe/greeks-pessimistic-in-anti-austerity-protests.html?pagewanted=all
The article with alot of information on my comment above.

Kaden Meeds

2/26/2012 08:12:04 am

Greece is experiencing a budget crisis so severe that the country may lose its footing in the European Union. Athens is reporting a deficit that is four times the EU limit, which means that Greece could be in danger of losing the euro as its national currency.

The government has promised tough austerity measures, but many Greeks say they are in no mood for sacrifice.

Farmers are blocking border crossings, highways and major ports to demonstrate their frustration. They say they're desperate. Cheap imports and middlemen's charges are apparently pushing Greek produce out of major markets.

Pavlos Issaris grows potatoes, wheat and corn. He says the cost of doing business is putting him out of business. He and other farmers want the government to provide subsidies to reduce the price of diesel and other necessities. And Issaris says he also wants the government to more aggressively control imports.

But the new government of Socialist Prime Minister George Papandreou is resisting subsidies. Athens is trying to reassure its EU partners with a plan that includes tax hikes and sharp cutbacks in the country's enormous public sector.

Nearly 1 in 10 Greeks is employed by the government as a civil servant; that's almost 1 million people. But Papandreou's pledge to trim that number has already triggered protests. Civil servants are planning nationwide strikes this month. The government also has drawn criticism from university students who now doubt that there will be enough jobs for them. Angry posters fill the walls of the entry hall at Athens University's economics department. Students there are skeptical that the government will be able to jump-start Greece's economy.

Valia Floridis, 21, is looking for work abroad. She says many young Greeks feel they have no future here.

"It depends on their dreams. If they just want to have a job and salary to eat and sleep and live without prospects, it's OK. But if you want more, if you want something great, if you have big dreams, no. It's not good here," Floridis says.

Finance Minister George Papaconstantinou says one of the biggest challenges facing the government's austerity plan is that few Greeks believe it will ever be implemented. This is the ninth such effort in 10 years. Previous plans were abandoned after protests from angry workers.

"People have a hard time believing that we're actually going to do what we say we are going to do. We are battling against perceptions, and perceptions change only when people see you are implementing your agenda," Papaconstantinou says.

There are other challenges, too. Athens must find a way to curb rampant tax evasion in the country. It's estimated that one-third of Greek taxpayers do not declare their income.

Widespread corruption also is a drain on both the government and the Greek people. Each year, nearly every Greek family spends about $2,500 in bribes. People call them fakelaki, which is the Greek word for "envelopes." And fakelaki help secure just about anything in the public sector — from a vehicle inspection to a building license.

Papaconstantinou says Greeks pay huge bribes in the health sector, too.

"They have to pay for a doctor, for a hospital operation, which in theory is free," he says. "What has been lost is this bond of trust between the state and the citizen, and this is what we need to put back together."

Many European analysts are skeptical that Greece can put its house back in order on its own. They believe there is a risk of Greece defaulting on its debt payments — endangering the stability of the entire zone of countries in Europe that use the euro as currency. At present, 16 countries are in the eurozone.

Greece is not alone in its economic woes. Spiraling debt also has pushed Ireland, Portugal, Spain and Italy to the brink.

Economic analyst Babis Papadimitriou says the Greek financial crisis has put a spotlight on the inherent weakness of the single currency union.

"It is very hard, and it's very dangerous to create a monetary zone with a unique currency without a common and well-coordinated finance policy and public finance policy," Papadimitriou says.

If the prime minister's austerity measures aren't enough to stabilize Greece's economy, then Athens must rely on help from its EU partners. And reluctantly, EU officials are beginning to discuss a bailout. http://www.npr.org/templates/story/story.php?storyId=123234869The economic boom in Greece turned into bust as predicted by Hayek. The decress in spending and tax increases will atempt to correct the deficit and debt. They are now experiencing a large recessionary gap

Ashley Sager

2/26/2012 10:45:40 am

An austerity is a policy to attempt to reduce deficit spending and increasing taxes to pay back creditors to reduce debt. But these policies aren't enough to stabilize Greece's economy. Income is falling rapidly, but prices are staying the same. "According to the EU and the IMF, oligopolies, transport bottlenecks, rigid market rules and inefficient policing are key reasons why prices in Greece are not falling as fast as they should to help restore the country's competitiveness." In order to buys goods, people are having to buy directly from farmers or have to order through the internet." "The Pieria Volunteer Action Team, a group of local activists, decided to use the Internet to help people get cheap food. They first contacted a potato grower in northern Greece with surplus stock and a license to sell directly to customers." But not just those heavily effected by the budget cuts are buying good this way. "Some of the clients, like doctors and other well-off buyers, came not because they were starving but because they wanted to make a statement against what they said was the failure of authorities to crack down on price fixers."

http://www.reuters.com/article/2012/02/25/us-greece-potatoes-idUSTRE81O0MV20120225

Caiti Marks

2/26/2012 10:49:34 am

Since Greece has been dealing with debt for over 2 years, Europe has decided to give them a bailout of 170 billion dollars (130 billion euros). Greece needed this loan in order to gain 130 billion dollars (100 billion euros) from private investors as well. These bailouts have helped Greece, however, their debt is still 129% of GDP. This article goes into further detail http://www.huffingtonpost.com/2012/02/20/greek-debt-crisis_n_1289242.html

Anne Frank link

2/26/2012 11:19:38 am

The value of Greece and its economic value is so low that the they are having trouble finding countries to buy their debt. Greece's unemployment rate is 20.9% as of November 2011. Therefore, there supply curve shifts due to decrease in productivity. They are increasing taxes and decreasing worker's wages making Greece go farther back into a recession. They are trying to put in policies called austerities which will attempt to reduce deficit spending and increasing taxes to try to pay back creditors. These policies wont be enough however. Greece basically needs a bailout of 150 billion euro.

Justin Johnson

2/26/2012 11:25:51 am

The problem of the European debt crisis has impacted Greece in a way that they are a victim of a slow growing economy. As a result, this made high budget deficits unsustainable. Investors responded by demanding higher yields on Greece’s bonds, which raised the cost of the country’s debt burden and caused a series of bailouts by the European Union and European Central Bank. The primary course of action so far has been a series of bailouts for Europe’s troubled economies. In December 2011, the ECB made €489 ($639 billion) in credit available to the region’s troubled banks. Although this increases aggregate demand because of a change in monetary policy, this method was criticized because it was “kicking the can down the road."

An austerity policy reduces government spending and increases taxes which are characteristics of a contractionary fiscal policy. In addition, this decreases price level and output which in turn causes higher rates of unemployment because of the decrease in RGDP. Although it may sound like it could help the economy out, it can actually hurt it because it slows down grows which then creates less tax revenue. In turn, this makes it more difficult for the high-debt nations to dig themselves out. The prospect of lower government spending has led to massive public protests and made it more difficult for policymakers to take all of the steps necessary to resolve the crisis. In addition, the entire region slipped toward a recession in late 2011 due in part to these measures and the overall loss of confidence among businesses and investors.

http://bonds.about.com/od/advancedbonds/a/What-Is-The-European-Debt-Crisis.htm

Justin Johnson

2/26/2012 11:29:33 am

spelling error 2nd paragraph 5th line:
*growth

Abby Skoyen

2/26/2012 12:24:25 pm

The problem is that Europe can't pay back it's debts due to slow global economic growth starting in 2009. Five of the main countries are: Greece, Portugal, Ireland, Italy, and Spain. To varying degrees, they have failed to generate enough economic growth to make their ability to pay back bondholders. Greece is getting hit the hardest because they spent heartily for many years and failed to undertake fiscal policies. When the growth slows, the tax revenues do as well making high budget deficits unsustainable. An austerity policy is a deficit cutting, lower spending, and a reduction in the amount of benefits and public services provided. They are often used by governments to reduce their deficit spending. It will impact the country of Greece because they are cutting spending by 10%, haulting public sector hiring, increasing revenues, and reducing waste. The majority of people know these measures have to be taken. Other nations that face similar debt issues are Spain, Portugal, and Ireland. http://online.wsj.com/public/resources/documents/info-EZdebt0210.html

Yvette Hagel link

2/27/2012 03:19:07 am

The main issue that Greece has had to face is that the government was spending money faster than they could make it because the Greece people stopped paying their taxes. But the banks where more than willing to loan billions of euro's to help make up for all the money that was spent, which only sent the country of Greece into more of a debt crisis. And since then Greece has tried to take measures, like trying to pass an austerity policy, to help fix the debt crisis. However the country has been unable to get out of it. An austerity is a policy that hopes to cut down on the deficit spending by lower spending, and reducing in the amount of benefits and public services provided by the government. Economists believe that the austerity policy will only shove the country into even more of a debt crisis, and the Greek people are seeming to agree with them because most of them are not in favor for the policy as they believe that it is destroying the Greek society.

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