a) Based on appendix 1, make a calculation illustrating the negative population growth in Greece from 2011 to 2017.
b) Based on your calculation and appendix 1, explain how the demographic development may affect Greece’s public finances in the short term and in the long term.
Explain why Greece generally has a higher interest rate on government bonds than Germany (appendices 2 and 3) and explain how that might affect the Greek economy.
Based on appendix 5, analyze the expected economic growth in 2018 in Greece and Germany.
Greece and Germany still share a single currency, the euro. As shown in appendix 7, several economists believed in 2012 that Greece would leave the euro. Discuss in the light of developments in the Greek economy since 2012, if it is still advisable for Greece to leave the euro. Include appendices.
The situation in Greece in 2012 and today is very different. They had at that point a bad economic position with a recession, low productivity and a high unemployment rate. However, Greece is on its way back on track and has as analyzed in previous question a positive economic growth with an increase in all the macroeconomic indicators.
Economists believed that the only way out of the crisis in 2012 was for Greece to leave the euro. If Greece leaved the euro it would have made them devalue their own currency, drachma.
This would have made it possible for Greece to regain their competitiveness with other countries it would have with the restructuring private investors cancelling the debt, result in a reduce in the Greek Government debt.
The article in appendix 4 points out that creditors will consider a debt reduction. The agreement of Greece receiving the next payment in its loan package will hopefully help re-stabilize the Greek economy. However, heavy cuts in pensioners and the deduction before tax liability will be reduced.
If Greece chooses to leave the euro now, they will devalue and their euro loans will have to be exchanged to drachma. With the new rules in accounting will Greece be able to convert most of their loans in a one to one exchange. With this comes an increase in inflation, which at this point isn’t too bad when looking at the graph in appendix 6.
On the other side, this will make Greece more reliable when bringing back the Government bonds and the obligations. As mentioned earlier, Greece would not be able to be backed up by the central bank when having the euro, but when leaving the euro, it will create a new option.
If they can be backed up by the central bank, their interest rates on the Government bonds will be lowered due to the trust from households as well as foreign countries.
Furthermore, Greece has been able to go from recession for years to increase their economic growth; the heavy cuts described in appendix 4 might be a good idea for keeping development in the future.
They are at this point still a part of the euro and if they can bring back their economic situation from 2012 to where it is now, isn’t it worth staying? It will probably not be an easy question to answer; there is a ton of things pointing in both directions.
Greece is at this point doing well and it can be argued whether or not leaving the euro now will increase their economic growth even more or not.