Comparative Analysis of Greece and Germany economic status during the Euro crisis (Coursework Sample)

Title
Name
 
 
Class
Professor
Institution
City and State
Date
Comparative Analysis of Greece and Germany economic status during the Euro crisis
The European Union economy was hard hit by the great recession that started in 2008. This resulted in an economic decline of member states leading to a critic crisis management procedure (Vegh, 2014. p. 288). Little success was realized from the measures developed such that there was a common budgetary allocation and harmony of interests was achieved. There was no viable crisis management measure at the level of the European Union so member states formulated their own localized measures. The volatility of bond markets, economic efficiency of primary traders and investing parties led to the effectiveness of the developed measures. Greece and Ireland were one of the hardest hit countries in the recession while Germany was seen to withstand the unfortunate phenomenon.
The case of Greece
Structural trouble in Greece economy was evident long before the crisis (Kentikelenis, Karanikolos, Reeves, et.al. 2014. P.748). Its case in the great recession is considered as the most severe of all European Union member states. This is evident in the close to 25% real GDP decline. During the recession period, Greece proved that the continued austerity packaging of large sizes could not be pushed through because of the political instability and social concerns and public debt that could not be paid back completely. The reason why Greece reported a severe case in crisis is because they entered into the great recession with high levels of public debts that amounted to 113% in 2008. This slowed down implementation of reform structures that were deemed necessary before the crisis.
Greece government experienced great pressure on its budget with an annual deficit of over 5% between 2001 and 2005. In spite of the challenge, the government aimed at increasing economic growth. Greece faced a financial crisis, with a decline in inter-bank relations and confidence that ended credit liquidity and increased pressure because of lending to financial institutions (Popescu, 2012, 344). Numerous downgrading by credit rating agencies in early 2010, which caused political strife, tax evasion, inadequate service quality in the public sector and corruption. All these were some of the reasons that caused Greece to experience greater economic crisis during the recession period (Vegh, 201. P.302).
Case of Germany
Germany survived the economic crisis of the European Union because they seemed better prepared compared to other member states. This was because of reunification in Germany, although it resulted in a period of weak economic growth. The financial and structural reforms legislative authority still pays dividends to date. Germany began a mission to grow and reduce deficit through structured labor reforms in the market. They embarked on this in the early 2000’s and they experienced a reduction in income taxes and executed vital labor reforms to improve incentives and increase productivity in manufacturing industry (Boccia, 2014, para. 3).
Germany reduced cost of pension in public programs, regulatory retirement age, terminated early retirement provisions and changed pension payment calculations. Germany also cut public sector payments and decreased subsidies in the industry. This reform gave Germany a significantly strong foundation it required to stand the economic collapse. This way, they were able to keep a good budget, which made them to be in a better position as compared to the countries that did not enact relevant reforms.
Germany also survived the recession because it reduced unemployment through Kurzarbeit, which is a state subsidy that compensated part of lost remuneration for workers who were affected by reduced cyclical demand. This was in a bid to encourage employers to maintain trained personnel in order to recover production rapidly and consequently to recover demand. Germany also kept the workers during the recession period as opposed to laying them off (Boccia, 2014, para. 9). This ensured continued production in industries to respond to the growing demand when the economy improved. Germany’s preparedness before the recession and the market reforms they implemented during the crisis period proved to be successful.
The case of Ireland
Ireland is one of the European members stated that was first to fall victim of the great recession. Long before the crisis, Ireland’s economy proved to be vulnerable, yet in previous years it had been one of the best performing countries in the union. In 2006, before the recession in 2008, real estate prices had fallen, which caused a collapse in the construction sector. Ireland was in desperate need of social expenditure that resulted in a fall in its competitiveness. Their economic growth before the crisis was accredited direct foreign investment and production of exports. These factors of growth were vulnerable and when the recession erupted, foreign capital reduced significantly. The entire economy was affected by the retreat of the banking system, which caused 1.7% annual GDP declination (Vegh, 2014, p. 229). Ireland lack of preparedness for the crisis and dependency on foreign investment and export for economic growth are some of the major reasons why they were severely affected by the European crisis.
Comparative analysis
The Euro crisis affected the European Union member states in different degrees. Greece’ economy was one of the significantly affected. Although Germany is a member of the European Union, they seemed to survive the crisis. The difference is because of the measures the country ha...