Greece's Debt Crisis
In the aftermath of the economic crisis, Greece was hit with a debt crisis of historical proportions. After years of discretionary fiscal policy and statistical frauds, Greece now faces $303 billion foreign debt, a deteriorating macroeconomic outlook and benign economic growth prospects.
Since the accession to the European Monetary Union, Greece's macroeconomic outlook has been deteriorated by volatile rates of inflation, high fiscal deficit and one of the highest public debt ratios in Europe.
In 1996, Greece's inflationary outlook was improved since the central bank managed to target the inflation which, for the first time, decreased below two-digit level. Since the accession to the EMU, Greece failed to curb the ailing fiscal deficit and very high public debt. The convergence criteria requires each country of the eurozone not to exceed the fiscal deficit by more than 3 percent of the GDP.
Ever since the beginning of the economic crisis, Greece's economic outlook exacerbated significant worries. In particular, Greece's terrible state of fiscal health was reflected in high levels of current account deficit. According to the IMF, the current account balance is expected to reach -9 percent of the GDP by the end of this year.
The Greek government expects the public debt rising to 110 percent of the GDP. However, the European Commission recently estimated the public debt to rise up to 124.9 percent of the GDP - the highest level of national debt in the European Union. The Commission projected the Greek budget deficit to reach 12.2 percent of the GDP in 2010 and 12.8 percent of the GDP in 2011.
In addition to one of the world's most terrible pension systems, Greece faces high burden of taxation, high government spending, onerous corruption and highly regulated labor market. The country is likely to face a slow and cumbersome economic recovery that could probably last several years. Loan guarantees from major EU countries and the issuance of bonds to cover fiscal deficit will hamper medium-term growth outlook.
In 2010, five-year spread on Greek bonds exceeded 400 basis points for the first time while credit default swaps rose to over 350 basis points. Fitch recently estimated that Greece needs to raise €51 billion to cover the annual budget deficit.
The real cure for Greece's economic crisis includes prudent macroeconomic policy, cuts in government spending and the reduction of country's vast and inefficient public sector. Without the restoration of credible and healthy fiscal management, Greece could become the next country facing a prolonged debt crisis and a recovery that could last for decade.
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Greece crisis what Eu centre bank policies?
The question now is what kind of policies the European centre bank(s) is or are going to implement about this problem as I written in my previous comment should European Union implement a European Union reserve at the same time having their own individual country reserve?, the reason for the European reserve is basically can be the reserve that circulating among the European Union as a borrowing (and can be a loan to other countries out of European Union that generate profit to the EU countries).
I believe with this reserve it can help the European Union to handle the problem like Greece as the problem like Greece can borrow money from the European Union that even make the Euro even stronger as the Euro is not going out to another non EU states. Just imagine Greece have to borrow a large amount of money from other non EU country(s) that eventually will affect the value of the Euro (will cost devaluing the Euro in future).
Beside European Union have to develop a strong reserve the European have to develop an Audit entity to prevent corruption meaning that the European union have to make sure all the money is channel to the right place but not for the politician(s) to abuse the entitlement of the loan that might create bigger problem in the near future (to protect the society of European union). As Euro as a one currency this Audit entity play a really important role to make sure the Euro is not been abuse by any other European Union countries that will cost devaluation of the currency and oversee all the European banks liability outside non European countries.
European centre bank have to act quickly to consult its member before the debts is going to a level where actually endanger the Euro (devaluation) and taking care of the well being of the Euro of European states.
I also believe all the weaker country (s) will soon leave EU in term of GDP, debts management, transparency and con not cope with EU financial policies.