Greece’s Buiness Cycle Odyssey: Can Greece Shift from Recession to Recovery?

Elli Korn – Honorbound

 

Just like gaudy corduroy goes in and out of style, a nation will go in and out of recession. Every nation is subject to a cycle of recession and recovery, no matter their form of government; economists have dubbed this phenomenon the Business Cycle.

But, while it is easy to understand that nations may experience a recession at some point, the shift from recession to recovery, precisely how a country can fix a recession, seems somewhat vague in most of our minds.

Governments have various options to fix an economy: monetary policy and fiscal policy. Both policies, while intrinsically different, aspire to prompt businesses and consumers alike to resume spending and investing.

Monetary policy cuts interest rates. A decrease in interest rates allows consumers to purchase houses and cars among other items. In addition, it encourages firms to invest in new plants and technology. In his book Naked Economics: Undressing the Dismal Science, economist Charles Wheelan defines fiscal policy as “the government‘s capacity to tax and spend as a lever for prying the economy from reverse into forward.” [1] To stimulate the economy, the government will fund various projects, thus creating jobs and providing enough of a demand for plants to resume production. Furthermore, the public will begin to feel comfortable enough to make significant purchases. From there, the cycle starts to work in reverse, effectively stirring the economy into action.

Now, while both policies are equally viable, the United States opted to use fiscal policy to stimulate its economy during the Great Recession. Under the Obama administration, the American Recovery and Reinvestment Act (ARRA) was passed in 2009: a $787billion stimulus, which authorized more than $500billion in federal spending on expanded unemployment benefits, resurfacing highways, and an onslaught of other issues. This stimulus was incredibly effective, raising the GDP by 2-3%, as well as saving millions of jobs.

Unlike America, Greek government following WW2 has been lousy at best, and inept at worst. Despite having a long history of boom and bust cycles – the Panic of 1893 and the Great Depression– the U.S. is characterized by its unique, and organized government. As mentioned earlier, ARRA gathered $787billion completely on its own.

Greece should be grateful it is a part of the European Union, as it was completely at the mercy of their fellow countries and the International Monetary Fund which provided the country with a bailout of $270billion. The bailout, of course, came with large stipulations, which were aimed to jump-start Greece’s economy: “The bailouts came with conditions. Lenders imposed harsh austerity terms, requiring deep budget cuts and steep tax increases. They also required Greece to overhaul its economy by streamlining the government, ending tax evasion and making Greece an easier place to do business.” [2]

Not only was America able to issue its own funds, it was to identify the correct actions to stir its economy; Greece couldn’t do either. Moreover, despite being issued mandatory effective fiscal policy, Greece still finds itself in debt today.

Instead of using the money to establish jobs and reform the country, Greece has been neglecting the stipulations, and choosing to repay its international debts. By neglecting to nurture their future, Greece has practically condemned itself to failure. If the nation continues to ignore implanting fiscal policy, there will be no business cycle, no recovery.

[1] Charles Wheelan, Naked Economics: Undressing the Dismal Science. (New York: W.W. Norton & Company, 2008).

[2] Alderman, Liz, James Kanter, Jim Yardly, Jack Ewing, Niki Kitsantonis, Suzanne Daley, Karl Russell, Andrew Higgins, and Peter Eavis. “Greece’s Debt Crisis Explained.” The New York Times. May 25, 2016. Accessed June 14, 2016. http://www.nytimes.com/interactive/2015/business/international/greece-debt-crisis-euro.html.

Fig. 1. HRP Bard. “The Greek Financial Crisis and the Economics of Human Rights.” Digital image. HRP Bard. October 12, 2015. Accessed June 15, 2016. http://hrp.bard.edu/event/the-greek-financial-crisis-and-the-economics-of-human-rights/.

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