The Greek Financial Crisis - Essay Example

Introduction This paper examines a contemporary issue – the Greek financial crises which caused major problems to the Greek economy and has transformed the social and cultural life. The paper would examine the management theories that relate to the business and environmental context of Greece and how it has been affected by the financial crisis. Also, the research would examine the longer term consequences of the Greek financial crises. The project would be conducted through a critique of secondary sources on a wide range of topics that relate to the Greek financial crisis. To this end, various authoritative sources would be examined to provide important information about the topic under review. The Greek Financial Crisis Video images of demonstrations and other harsh economic conditions in Greece are not uncommon in the media. Greece has been at the forefront of a major financial situation that can be attributed to their inability to meet the requirements of the European Union (Sladek, 2010). Many debates and arguments have ensued about the appropriateness of the country continuously remaining as a member of the European Union (Sladek, 2010). However, the rules of the European Union requires that the country discharges its obligations to the European Union and works to meet all the requirements of the Common Market. On the other hand, many Greek citizens are very unhappy about the changes and adjustments that are required. The root of the Greek financial crises can be traced to the fact that the country has maintained a government that carries out uncontrolled spending which leads to high sovereign debts (Pasiouras, 2011). The European Union requires that member states governments cut down on subsidies and excessive spending amongst other things (Levy, 2012). However, Greece has a history that goes back to years of running a welfare-state modeled on the principles of Communism (Grawitzky, 2012). This is because from the period before Greece joined the European Union, the nation maintained a system whereby the public sector was the primary engine of the economy. The public sector was the largest controller of resources and the public sector also employed the vast majority of workers in the country (Grawitzky, 2012). Impact of EU-membership on Greece Greeces membership of the European Union came with several requirements and expectations from the article of membership (Pettifer, 2012). This is because the European Union is built on the elements of supply-side economics which requires the private sector to be the main and primary engine of growth of the economy (Pettifer, 2012). This is connected to the fact that the European Union was formed by nations that were on the Capitalist side of the Cold War. These nations believe in allowing people to work to earn their expectations in life, rather than get the state or government to control resources. The clash between the European Union and the Greek economy meant that there was an inevitable conflict which would require Greece to dismantle its public-sector oriented economy in favour of a more privatized system. The European Union seeks to create a Single Market that would promote property owning democracy across member states with the hope of promoting efficiency through the principles of Capitalism. Greece joined the Union in 1981 but it has been slow in dismantling its welfare-structured system in favour of a Capitalist model of governance where competition was encouraged (Sladek, 2010). In spite of these realities, Greece has been repeatedly ruled by parties that are Socialist in outlook (Sladek, 2010). These parties have continued to uphold the welfare-oriented practices of the government and reforms and conformity with EU principles have come rather slowly. Around the year 2005, pressure from the European Union increased and the problems in the Greek public sector was uncovered (Pasiouras, 2011). The country was not able to pay its sovereign debts and the International Monetary Fund came to the aid of the Greek government. However, there were signs that Greece would not be able to pay its loans unless it made some significant changes to its policies and systems. The main bottlenecks in the system included the fact that taxes were not sufficient to pay of government spending and also pay for the hundreds of billions of dollars in loans that the IMF was proposing. There was so much inefficiency in the Greek public sector and this included bribery and corruption in the system which made the government sector so unproductive (Sladek, 2010). The failures and the incompetence in the system made it clear and apparent that Greece would not be able to meet its obligations to the European Union. The effect was that some authorities predicted that Greece would opt out of the European Union. With this occurrence, the foreign businesses operating in Greece fell into a chain of fear and anxieties. Whilst some feared the exit form the EU, others suspected that the government might expropriate foreign assets if Greece opted out of the EU(Pasiouras, 2011). Thus, businesses began to sell off their assets and fold up their businesses in Greece. Eventually, huge public bond yield spreads and the loss of credit spreads led to a major financial crisis (Sladek, 2010). The IMF offered to bail Greece out with a loan of $150 billion but with very stringent conditions that included austerity measures, deregulation, privatization and major structural reforms (Sladek, 2010). The Greek public who were likely to suffer from major subsidy cuts amongst other things began to demonstrate and this marked the highpoint of the Greek financial crisis. The next questions relate to how this would affect a business in Greece and how this would influence the macroeconomic condition of Greece and the European Union as well as the business and industry-position of a company operating in the company. Also, it is unclear what the long-term impact of this would be. Implication to the Business Environment Grant and Wilson (2011) put the Greek financial crisis into a bigger context and situation. They link it to the global financial crisis and credit crunch which created major financial challenges for businesses around the world. This made it difficult for nations in the European Union to support nations that were not meeting the financial requirements and expectations of the nations. The crisis led to many challenges and changes that made Greece a less desirable place for anyone to conduct business. For instance, Greece ranked as number 109 in the “Ease of Doing Business” indices of the World Bank. Fellow EU members, Britain and France came 5 and 31 respectively (Grant and Wilson, 2011). Greece had a score of 3.8 out of 10 in terms of fighting corruption and promoting transparency whilst Italy, a nation considered to be very corrupt scored 4.3 which was ahead of Greece. Spain came in with 6.1 and France and the UK came in at 6.9 and 7.7 respectively (Grant and Wilson, 2011). This shows that the incidents affected the macroeconomic systems and structures of Greece. The welfare-oriented system was causing problems and troubles for the nation and it had bred so much inefficiency that was apparent and clear to all those involved in the business sector. At the same time, the Greek financial crisis also induced the economy to become more redundant and less effective for promoting businesses. This obviously caused more people to move elsewhere to ply their trade in order to attain better results and targets. Implications for Greek Businesses The problems and challenges in the Greece crisis led to some issues that changed the external environment for businesses that might want to do business in Greece. This would obviously influence and modify the external environmental analysis of businesses that operate in Greece. The following observations were identified in the research: 1. Political: The Greek financial crises caused an automatic problem with the Greek political system. First of all, Nanto (2011) identifies that the political crisis led to a situation where there have been many changes in government and confusion about the formation of governments. This has caused a system of political turmoil and a series of political uncertainty which has led to so much confusion and disagreements about how the nation is to be ran. Long-Term and Global Trends Conclusion LO1: Demonstrate knowledge and understanding of a range of contemporary issues and their impact on organisations and their relationship to management theory. LO2: Critically apply management theories to a variety of environmental and organisational contexts. LO3: Analyse and evaluate how long – term trends in the global economy might impact on business operations. LO4: Provide evidence of effective use of relevant information from a variety of academic and professional sources. References Grant, W. and Wilson, G. K. (2011) The Consequences of the Global Financial Crisis Oxford: Oxford University Press. Grawitzky, R. (2012) Impact of the Greek Financial Crisis Cape Town: Juta Publishing. Levy, E. (2012) Current Macroeconomic Indicators in Greece London: Polity Press. Nanto, D. K. (2011) Global Financial Crisis Darby, PA: DIANE Publishing. Pasiouras, F. (2011) Greek Banking: From the Pre-Euro Reforms to the Financial Crisis and Beyond London: Plagrave Macmillan. Petrekes, P. (2013) Greek Economy and the Crisis London: Springer. Pettifer, J. (2012) The Making of the Greek Financial Crisis New York: Penguin Sladek, H. F. (2010) The Greek Financial Crisis and the European Union London: VDM Publishing. Read More