GREEKDEBT CRISIS COMPARED TO IRELAND
GreekDebt Crisis Compared to Ireland
Greecehas been experiencing the one of the harshest economic crisis in therecent past. The Greek crisis was mostly attributed to a long timefiscal mismanagement with thoroughly too large deficits even in theperiod of the boom. The European authorities have been forced tocontribute approximately $8.4 billion as a bailout aid for Greece(The New York Times. 2016). The funding was meant to help the nationcontinue paying its bills in the months to come as it formulatesbetter ways of reviving itself from the crisis. This, therefore,indicates the unimaginable state of the nation that is known to beamong the earliest economies in the world. The nation has alsoreceived additional pledges of debt relief as a way of easing theconcerns about a subsequent crisis in the nation especially in theperiod when Europe is trying to deal with issues such as terrorismand an increase in the population of migrants. The InternationalMonetary Fund has been keen to note that Greece will have trouble inmeeting its budget goals if it fails to ease its debts. Just likeGreece, Ireland also experienced a financial crisis but has sincelearned how to unhook itself from the austerity. The nation has beenable to raise cash at rates not far above 1.5 percent from itsborrowers unlike Greece, which is still locked out of the markets(The New York Times. 2016). Unlike Greece which entered the crisiswith national debt already at dangerous levels, Ireland entered thecrisis with little national debts. In fact, the debt level of Greecewas at one hundred percent of the nation’s GDP. Based on factorssuch as the degree of debt, the situation of the country and theattempts to revive from the debt crisis, it is clear that there is adistinction between the Greek debt crisis and that, which wasexperienced in Ireland.
TheHistory of Greece in Relation to the DebtCrisis
Severalsources have connected some of the historical events in Greece to thecurrent situation where the nation’s economy is in a state ofturmoil. Through a closer analysis of the historical events of thenation, one would note that the nation endured a dreadful occupationunder the German forces during the Second World War. The country waslater torn apart by the civil war that erupted as a result of thegovernment forces and the Communist troops (Buchanan,2015).War is apparently known as one of the factors that can lead to aneconomic downfall of any nation despite their economic power. Thegovernment emerged victorious in the war, but the aftermath was verymuch worse to the nation’s state. The end of the war in 1949 leftthe country in an economically compromised state and politicallydifferentiated. The state of political polarization has remained inthe nation for ages and has always haunted their progress until theexiled communists made their way back home. The political divisionand the economic aftermath of the country have had a significant roleto play in the economic ruin of the nation.
Historyalso shows that the nation has had difficulties with its financesover a period. During the nineties, Greece consistently ransubstantial budgetdiscrepancies while making use of the Drachma (Buchanan,2015).Due to the economic problemsthat were mainly attributed to the mismanagement, the nation becamepart of the Euro in 2001 as opposed to other countries in the region,which joined the Euro in 1999. After being part of the Euro, thecountry’s economy grew between periods of six years from 2001 to2007. This period was commonly referred to as the boom years, andfrom a closer point of view, the boom was largely unsustainable.Nations were mostly attracted to the cheap loans with no clue of theconsequences that would arise from the same. Greece was one of thebeneficiaries of such loans.
In2008, things changed in a negative manner as the nation experienced afinancial crash. The 2008 crash affected many nations in the EuropeanUnion including Ireland, but the fall happened to be very steep forGreece that it has had great difficulty in moving back to a stableposition. The nation was this time unable to print more money tostabilize its economy as it had done in the previous years becausethis time, the Euro was being controlled by the European CentralBank.
Anotherproblem emerged in 2010 when the nation received its first bailout.The International Monetary Fund, the European Central Bank, and theEuropean Commission offered loans to the country in exchange forspending cuts and tax hikes (Buchanan,2015).This affected the state of the nation despite the stabilization ofthe economy. The level of debt by the Greek government had becomehuge and weighty. As if that was not enough, the state later receiveda second bunch of bailout, which raised the amount of money given toGreece regarding the loan to a whole ₤169 billion as shared byBuchanan(2015).The number was too large for Greece to pay resulting in a crisis.
TheFinancial Situation of Greece compared to that of Ireland
Greeceand Ireland share a similarity that they were both affectedsignificantly by the debt crisis, but their situations were quitedifferent. While Greece remained stuck in the crisis, Ireland wasable to get out of it in a swift manner. The situation in Greece wasattributed to widespread fiscal mismanagement with analytically verymassive debts even during the boom. On the other hand, Ireland’scrisis was brought about by a burst of the property bubble, which ledto great problems in the banking system. During the boom, Irelandalready had a surplus regarding finances frominvestments.
Ireland’sdebt has always been lower than that of Greece and other nations inthe Euro area. In 2009, the Irish government had a debt level thatwas below the Eurozone average. It had a debt level of 65.5% of itsGDP compared to the area’s average of 79.2% (Tsafos, 2010). In2010, the country’s debt level escalated to levels that were abovethe eurozone average but were still lower than those of Greece andother nations in the zone as put by Tsafos (2010).
Anotherdifference between the situation in the two countries is due to thenature of the debts. The Greek deficit is of a structural nature. Onthe other hand, the nature of Irish’s deficit is largely because ofa time factor referred to as the bank bailouts. From the description,it is clear that that the Irish deficit is more likely to drop overthe years even without the recovery or austerity. The economy ofIreland was set to thrive again after the recapitalization of thetroubled banks is completed. This is very different from thesituation in Greek where the crisis can only be averted by ensuringthat all the debts are paid on time. From the happenings in history,one can easily tell that it might be hard to outlay the bankbailouts. The recovery of most of the outlays is only achieved afterthe bank has fully recovered. From the statement, the deficit of theIrish government is likely to be reduced in a faster manner comparedto that of Greece.
TheIMF-EU Rescue Package
Bylooking at the IMF-EU rescue package, Ireland is more likely toexperience substantial losses compared to the Greeks. The Greeks hadno significant disadvantage in accepting the package due to thecurrent need for the austerity measures although they went ahead todepend much on the increase in tax than they did on the spending cuts(Tsafos, 2010). They also lowered their costs of borrowing. Itmight, however, be hard for a state like Ireland to get moreausterity measures and even lower their borrowing costs as othermembers of the European Union may resolve to condition aid on anelevation in the corporate income tax rate for the nation. Theincrease in tax would, for Ireland, lead to a decrease in thecountry’s tax revenue. The drop of such would have had a directnegative impact on the profit margin of the multinational companiesthat had invested in the nation. It would also lead to a reduction ofthe real investments in the nation and in turn raise the tax revenuesof other nations of the Eurozone hence the reason why Ireland isreluctant to rush into such.
Fromthe review of the different literature, it is evident that there is aclear difference in the crisis in Greek and Ireland. The situation inGreece seems to be more severe than the one in Ireland. It is clearthat the Greece’s debt crisis is deeply rooted and has beeninfluenced over the years by the occurrences in the nation. While thefinancial situation of Greece is influenced by fiscal mismanagementand partly due to the historical war that wrecked the nation in thefirst half of the twentieth century, the situation in Ireland wassignificantly influenced by the burst in the property bubble.
Thesituation in Ireland is also easy to revive as compared to that inGreece, which is faced with a large accumulation of debts. Irelandexperienced an improvement in its public finances and also had arobust economic growth in the past twenty years and would, therefore,not have great suffering as a result of the economic hurdle that itfaced in the recent years (Tsafos, 2010). Most of the systems inIreland are stable and are run in an effective manner as opposed tothe Republic of Greece where there have been consistent cases ofmismanagement of the economic systems over the years. Ireland alwaysmade great efforts to restrain its debts while Greek ran persistentlyon budget deficits. This has been experienced over the years as in1987, Greece’s public debt had escalated to a high of 112% of thegross domestic product, and slightly under 25% by 2007 (Tsafos,2010). The levels are very incomparable with those of Ireland, whichwas running a budget surplus averaging to 1.6% of their grossdomestic product.
InIreland, the housing bubble was the only known form of an increase inprivate debt. This is different from the state of Greece, which ishaunted by years of prolonged mismanagement of its economic systems.The gross debt to income ratio in Ireland had risen to 200% by theyear 2009 thus making the Irish banks to rely more on cheap loansleading to liabilities of slightly over $600 billion resulting in abailout (Tsafos, 2010). Even with such, the Irish government, unlikethe Greeks, afforded to maintain a sustained and material improvementin the standards of living of its people.
Itis evident that there is a significant difference between thesituations in the Greek debt crisis and that of the Republic ofIreland. The debt crisis is greater in Greece due to its largeamounts of debts it is more likely to require greater intelligenceand resources for it to recover compared to Ireland. The crisis inIreland was mainly attributed to the cheap credit that created thehousing bubble leading to a rise in private debt. The case of Greecewas, however, different as it has experienced extended periods oftime where its economic systems have been compromised and have reliedon debts for long. Despite the debt crisis, Ireland has been able tosustain its population unlike in Greece where the effects of the debthave affected the people.
TheNew York Times. (2016, June 17). Explaining Greece’s Debt Crisis.Retrieved December 13, 2016, fromhttp://www.nytimes.com/interactive/2016/business/international/greece-debt-crisis-euro.html?_r=0
Tsafos,N. (2010, November 28). Ireland versus Greece: A High-LevelComparison. Retrieved December 13, 2016, fromhttp://www.greekdefaultwatch.com/2010/11/ireland-versus-greece-high-level.html
Buchanan,R. T. (2015). Greece debt crisis explained: A history of just how thecountry landed itself in such a mess. Retrieved December 13, 2016,fromhttp://www.independent.co.uk/news/world/europe/greece-debt-crisis-explainer-a-history-of-how-the-country-landed-itself-in-such-a-mess-10365798.html