Greece Blog: An Intro to the Economic Crisis

June 7th, 2017 Contact: Effie Antonoudi  |  770-229-3322  | More about Effie

Our first stop was the Central Bank of Greece. As we entered the museum, there was a huge container filled with shredded Euros. I learned that these Euros were shredded because they were damaged or overused. This is typically the only reason any countries that are part of the European Union print new money. They do not use the increasing or decreasing of the money supply as a tool to inflate or deflate the economy, unlike the US who uses the money supply for job security. The European Union fears the use of inflation due to the consequences of World War II. For instance, Germany had serious hyperinflation to the point where people in Germany were burning their money instead of buying wood, because their currency was so useless. I also learned the intricate process the European Union has developed to create Euros. They have over thirty different security measures that are used to protect the Euro from being easily reduplicated. They have a very low percentage of counterfeit Euros, ranging from about two to three percent. They also have artists who design the Euros with very detailed drawings and processes, in order to stop forgery. The museum was very eye-opening to how countries other than the United States control and create their currency.

Our second stop was inside the bank to attend a lecture about the Greek economy amidst their crisis. The two main causes of the crisis were the twin deficits, which included a large difference between imports and exports, and a loss in competitiveness. This loss in competitiveness was due to a very high unit labor cost, meaning that products and services had a very high cost of producing, so the prices of their products were very expensive, and not competitive in the world market. This led to less exports than before the crisis, which was already low due to Greece’s big service industry. Many projects were adopted by the Greek government to try and recover from the recession, but only some are effective. They started by lowering the wages of employees, so that products and services would be affordable. This has also raised employment, because lowering wages increases the amount of people a business can hire. However, these low wages were also being taxed by the government, as another way to help Greece make money, but this affects the consumers, because they end up with less money, so they have less desire to consume. The lower wages have helped with exports, however domestic spending has not increased significantly. The government has set review periods, to observe the success of their programs. Currently, the observations from the second review are supposed to be available to the public, but it has not yet been released. This has made consumers in Greece very reluctant that the government’s programs are working, driving purchases by consumers down even more. Overall, their programs have had three major strengths: industry-manufacturing increase, exports increase, and employment increase. An increase in manufacturing has led to products declining in price for consumers, meaning Greece can export more, which has a positive effect on their economy. More exports, leads to more help being needed, so more employees are being hired, decreasing the unemployment rate, although it is still very high. Their programs have also had three major weaknesses: decrease in consumer spending, decrease in investment, and bank liquidity. Considering consumers have less money from lower wages and higher taxes, they have less money to spend on luxury items, less money to invest in businesses, and less money to deposit into banks. All of these consequences lead to a weaker economy. Although the Greek economy is doing much better, it still has many years before it can completely recover.

In our second lecture, we learned about the New Entrepreneurship and Innovation in Greece. Considering Greece never had a full and deep Industrial Revolution, they never had a very successful manufacturing sector, and still relied heavily on agriculture and the service industry. A lot of businesses relied on the government for success, which was not sustainable for the Greek economy. They relied heavily on imports from other countries, which began to lead to the crisis. Construction was also a large part of their economy, which is not typically what a developed economy relies on. Greece was missing the innovative industry. The innovative industry consists of: creating new product, producing a product more efficiently, and/or new ways of branding your product. This was missing because most people either worked in the public sector, or for a small business to make pocket change, but nothing new was being created, the sectors were low-tech, and the services were non-tradeable, so they could not compete with the rest of the world. Now that Greece is trying to recover, it has been discovered that the most important part of having a successful business, is having new innovative ideas or products, and selling it to the rest of the world. Some Greek businesses have been successful by doing this through ecommerce. Another way to phrase this is “born global,” meaning that from day one, the business exports all of its products. This change is so important considering the decrease in money that consumers in Greece have to spend on products. It is also important to be competitive, the internet is a huge tool that many other countries use, so it is important that businesses in Greece use it to their advantage as well. It is currently difficult for people in Greece to start businesses because of their lack of money, and the very small amount of loans the banks in Greece offer, but with help from universities and researchers, a successful business is possible, and can be very advantageous to the Greek economy.

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