The Greek Debt Crisis

The Greek Debt Crisis refers to the sovereign debt owed by Greece to the European Union between 2008 and 2018. Greece’s announcement in 2010 stating that it might default on the debt caused The European Union to loan Greece sufficient funds to continue making payments- resulting in the biggest financial rescue of a bankrupt country in history. As of January 2019, Greece repaid 41.6 billion Euros, causing the scheduled debt payments beyond 2060. Despite the governmental and financial reforms suggested by the EU, this crisis triggered the Greek recession that lasted till 2017. Additionally, the ripple effect also caused the eurozone crisis, threatening the spread of a global financial crisis.

Assessing the lack of audit in this national catastrophe is rooted in understanding what caused the deficit and the stances of involved participants. Despite being a member of The European Union since 1981, Greece adopted the euro as its currency in 2001 because its budget deficit was too high for the eurozone’s Maastricht Criteria. Initial years witnessed Greece benefitting from the power of the euro by lowering its interest rates and bringing in investments. However, in 2004 Greece announced that it had blatantly lied to get around the Maastricht Criteria (The deficit levels needed to adopt the euro). France and Germany’s overspending combined with the reluctance of weakening the euro by expelling Greece caused The European Union to not implement any sanctions. This resulted in a piled-on debt until the economy crashed in 2008.

In 2009, Greece’s budget deficit surpassed its Gross Domestic Product by 15%. This led to a crash of Greece’s bond market, causing a discontinuance in its further debt payments. As a part of the austerity measures suggested by the EU representing governmental and financial reforms in Greece, the nation’s pension system underwent a restructuring. Pension payments had absorbed 17.5% of GDP, higher than any other EU country. Public pensions were 9% underfunded, compared to the 3% of any other nation. The proposed measures required Greece to cut pensions by 1% of the GDP. The government was led to cut their expense and increase taxes, costing them 72 billion Euros (40% of GDP). Resultantly, the Greek economy shrank by 25%.

Today the Greek economy has stabilized and is slowly recovering. But the huge debts owed by the Greek to the European Union cast a shadow over its future. For the public, the repercussions were painful budget cuts, increased taxes, high unemployment, and shrunken living standards. In many ways, Greece is an example of what ails sovereign debt today. Although the causes of the crisis can be traced back long before 2009, it has highlighted the devastating results of today’s unsustainable sovereign debt- even one that is a member of an economically developed union. Unsustainable sovereign debt is one of the most pressing global economic issues and the lack of a robust auditory structure is a glaring feature that cannot be overlooked.

Economies need efficient ways to address national debt issues by formulating exhaustive and resourceful audit frameworks. Ex-post solutions like stronger legal frameworks and debt restructuring are rendered futile because by the time these are put into action, the crisis develops to be complex and hard to trace. Therefore, the most preemptive address to sovereign debt issues like the Greek Debt Crisis are sovereign debt audits. Systematic and regular examination of a nation’s financial status encourages discipline around lending and borrowing practices. A refreshed approach with extensive audits can potentially avert future crises.

The United Nations-led Supreme Audit Institutions (SAIs) along with the International Organization of SAIs (INTOSAI) has formulated a public debt audit framework. Having initiated their assessment in 2007, they already found the incurring sovereign debts worrying. The latest United Nations principles have extended the scope of sovereign audits by implementing the scrutiny of borrowing and lending practices, debt disbursements, and sustainability issues. An expansion into these areas has significantly disciplined public debt as compared to limiting the auditing to the stock of public debt. As of 2015, over 20 sovereign borrowers were undergoing a debt audit in accordance with the extensive United Nations principles. This reflects how a competent audit structure could have helped mitigate, if not prevent, the Greece Debt Crisis.

The Greek adoption of the euro under the pretence of eligible deficits according to Maastricht Criteria could have been avoided by stringent auditory norms, giving Greece enough time to sort their public finances before undertaking the euro. A further assessment of the expenditure by the Greek government would have helped them to adopt a more controlled approach towards their finances, leading to a sustainable debt. Conclusively, I believe that if a methodical audit framework was implemented combined with strategic timing would be a competent tool to prevent sovereign debt crises in the future.

In hindsight, the Greek government could have heavily benefitted from extensive financial audits to categorically assess, strategize and improve their finances. The continuance of debt to keep the Greek banks, including their central bank solvent could have been reexamined and improvised, resulting in mitigating effects of this financial crisis. A closer glance at this sovereign debt crisis reveals that the pension and taxation restructuring that Greece went through to continue its debt payments caused more harm than good, this could have been documented and rectified with the help of financial reporting. Therefore, I believe that financial reports are instrumental for a nation to not only weigh the past but to decide on the future as well.



By Purva Dafle

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