Abstract

The debt problem in Greece – about 125% of the country’s GDP – came out into the open in 2008-2009, having remained undisclosed till then, and soon turned into a sovereign debt crisis. Many economists opined that the main cause of this problem was the huge expenditure incurred on the 2004 Olympics and the false accounting of the budget report during the period 1999-2008. The solution in the long term was to overcome the debt by implementing stringent monetary and fiscal policies and constraining the further growth of debt. In the short term, though, the IMF expressed its intent to provide loans at a low interest rate in order to let the Greek economy retreat from the tangles of the debt crisis. Also, as the euro currency was being shared by 16 countries of EU, no EU country would want the value of the currency to go down. As a result, to protect Greece, rich EU countries, namely France and Germany, also came to its aid.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• To analyze the nature and causes of Greece’s sovereign debt crisis
• To debate on the alternatives / options available in the short run and in the long run to diffuse the economic crisis and discuss the relevant monetary and fiscal policies to be used
• To analyze all the possible implications of Greece’s sovereign debt crisis for the European Union in general and the European Central Bank in particular
• This case is meant for MBA students as part of Macro Economics. It can also be used in International Trade.

Keywords

Greek Economy, Greek Sovereign Debt Crisis, Nature and Causes of Greece's Sovereign Debt Crisis, Implications of Greece's Debt, Unrest in Euro Zone, European Economic Crisis, Monetary and Fiscal Policies, Euro Currency, IMF Aid to Greece, PIGS and Euro Zone