Greece Austerity Measures

Introduction

The reason behind the implementation of austerity measures in Greece is the debt crisis which started in 2009 when the government announced that its budget deficit would be 12.9% of the GDP, exceeded 3% the limit set by the European Commission (EC). However, the seeds were sown as early as back in 2001 when Greece was able to join the Euro through "deception" along with currency bloc's leaders being "too polite" to deploy adequate sanctions, according to former ECB Chief Economist Otmar Issing in an article on Bloomberg. This was admitted by Greece's government in 2004 when they said Greece lied to enter Eurozone and reports surfaced have revealed that Greece's budget has not been within the 3% limit ever since, resulting in a drop in credit ratings by different agencies. On top of that, Greece's budget deficit continued to worsen as government was still squandering funds on many different benefits for public workers like "bonus for showing to work", "flying for free", "lavish Christmas presents" and even "setting up committees for practically no reason" and these are all reported in Reuters. Public sector wages, for example, rose 50% between 1999 and 2007 - faster than other Eurozone countries. Based on an article on About.com, in 2010, Greece announced an austerity package to reassure investors that "it was fiscally responsible by lowering the deficit to 3% of GDP by 2012". But 4 months later, they reported that a default might occur and this prompted the EU and IMF to provide a €110 billion in emergency funding fearing that Greece is unable to repay its debts. In exchange, the condition for the funds was to enact more austerity measures and this had caused a domino effect stretching till now.

Austerity measures involve policies to cut spending and increase tax in order to reduce deficit. CNN reported that the latest string of measures was introduced on 8th November that includes $17.2 billion of spending cuts and tax hikes for the next 2 years. Some of the spending cuts are - reducing pensions by 5% to 15%, public workers' salaries will fall by 30%, $2.16 billion cut in healthcare for the next 3 years. It also spells out labor reforms like increasing the retirement age from 65 to 67; limits compensation for workers with more than 16 years of service and gives stores the right to ask employees to work more flexible hours. All these aim to reduce spending by the government, however, on the flip-side, revenue is increased by raising the taxes. Greece's tax has fluctuated and only increased. Some main tax hikes will be increasing personal tax rate to up to 45%, and sales tax rate has increased progressively from 19 to 23% over the years.

Greece's Debt: A government debt is a debt owed by the government of a country to its creditors. In Greece's case, its debt to GDP ratios