Introduction

After the recent financial crisis in 2008, Greece was left to deal with its crippling debt burden, the result of a devastating recession, coupled with extortionate government spending. Six years of continuous economic slump caused the unemployment rate in Greece to rise to a record high, and reduced the size of its economy to a quarter of its previous size before the crisis. Greece had to resort to austerity measure in hopes of improving its budget balance, as well as receiving bailouts amounted up to approximately €240 billion from its fellow Eurozone members lest it defaults on its loans and affecting the economies of other European countries. Recently Greece has predicted returning economic growth and ease up its austerity tax rates with optimistic hopes for recovery.

Current position of Greece’s Economy

At the moment, Greece is experiencing negative growth in its economy, with a -0.4% GDP growth in the first quarter of 2015comparede to the previous quarter. Greece’s current GDP is around €226 billion, a reduction of €232 billion since 2014 fourth quarter. Greece’s GDP has been falling continuously after the financial crisis since its peak in 2009 at €320 billion. However, there is an increase in annual GDP growth of 1.2% in the fourth quarter of 2014 over the same quarter of the previous year, which might hint toward a slight recovery for Greece. Nevertheless, compared to its projected trend GDP growth of 2.9% for 2015, Greece still suffers from a significant negative output gap of 3.3%.

The current position of Greece’s economy can be illustrated using an AD/AS graph.

Consumer spending in Greece reached its lowest point in 2013 at €26,383 million, however rising up to €33,134 million in the last quarter of 2014, showing an improvement in consumers’ confidence. Depressed consumption might be due to Greece’s credit crunch, with consumer credit at the moment coming to a total of €26,136 million. Even with interest rate as low as 0.05% in recent time, it is still unable to stimulate consumption to a higher level.

Unemployment has reached 26% as at December 2014. This is an improvement compare to its peak at 28% in 2013, but nonetheless is still disturbingly high. High unemployment rate in Greece can be blamed on the persistent depression as well as the austerity policy that Greece has been running on. Austerity taxes on income reduced incentives to be employed, while corporation taxes diminished demand for labour.