Mismanagement of Fiscal Policy: Greece's Achilles' Heel
(8 pages of text)
Case (Pub Mat)
In December 2016, the debt-stricken Greek government announced the distribution of a sizeable “Christmas gift” to its low-income pensioners, a one-time bonus that would cost the government €617 million. This cost was in addition to suspending increases in the value-added tax on some Greek islands. These plans were in clear violation of the terms of a bailout provided to Greece by Eurozone nations in 2015, which required Greece to implement austerity measures and achieve specific fiscal targets. What was the reason for Greece’s economic troubles and why did Greece’s debt-to-GDP (gross domestic product) ratio climb to its current three-digit figure? Faced with an imminent exit from the Eurozone, how could the country’s government solve Greece’s longstanding fiscal problems?
This case can be taught in a general management course in a graduate/MBA program or an executive MBA module dealing with the business environment (macroeconomics), international economics, or in a course on business and government.The case provides students with a basic understanding of fiscal policy and deficits, financing of deficits, and the ramifications of accumulated deficits. Specifically, the case will help students to understand the following:
- The relationship between deficits and debt.
- The use of fiscal policy in mitigating business cycles.
- The operationalization of fiscal policy through a budget.
- The financing of fiscal deficits and its significance, especially for debt.
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