Greek/World
economic crisis and
income inequality
University of Ioannina
Department of Economics
Course: English for Economists IV
Instructor: Theodora Tseligka
Academic year: 2013-2014
Skoufi Maria (2857)
Sakkoy Lydia (2855)
Index:
1) Introduction……………………………………………………………….page 2
2) Greek economic crisis…………………………………………………page 2
3) Causes of economic crisis………………………………………….page 3
4) Greek economic crisis and income inequality……………..page 5
4.1) Importance of income for Greek economy…….page 5
4.2) Effects of crisis on income…………………………….page 6
5) Conclusion………………………………………………………………….page 8
6) References………………………………………………………………….page 9
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1) Introduction
The economic crisis began in 2007, from the United States because of the wrong
monetary policy of the Central Bank, low interest rates and low investment, lead the
market in “bubble”. The crisis reached in Europe from the crisis of debt that became
dramatic in 2010 and began from the economic collapse of Portugal, Ireland, Iceland,
Greece and Spain. Moreover, the European Economic and Monetary Union was
swinged equally. The initial shock that began from the precarious housing loans in
America began to influence the markets of money of developed countries in August
2007.
2) Greek economic crisis
Present situation:
One of the most important consequences of economic crisis is the increase of
unemployment, which has reached a double-digit number while between the young
persons the percentage of unemployed exceeds 25%. When it comes to the course of
Greek industry, not only the reduction of turnover which is at 26,8% and causes
intense concern, but also the indicator of new orders. This indicator fall at 36% and
decreases continuously the degree of employment of productive potential for the next
months. It results that the total employment fall at -1,3% in annual base the passed
May. The unemployment reached in the 8,5% of workforce, with the unemployed
increasing in the 420 thousands against the 324 thousands that were one year before.
The overdraft cheques and unpaid exchange exceeded the two billions of Euros from
the start of the year. The whole market works with postdated cheques, which because
of the recession they function as a reverse pyramid. They do not only threaten what is
published and in this case their cover is in any case lost. They threaten they torpedo
even healthy enterprises if these burst in their hands. Then responsible governmental
factors ensured that the Greek economy is still shielded and they prepared the eminent
parcel of support of real economy of 28 billions of Euros. If the expenses exceed the
income, the government marks deficit and it should proceed in lending. Thus is
created debt. Moreover, if the government has accumulated debt from previous years,
at which she functioned marking deficit, the deficit at the running year increases
further the debt.
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3) Reasons of economic crisis
The fact is that up to 2004 the country is found in the 29 more developed countries of
the world. Who is the most basic reason of the current crisis?
It was expected that the world economic crisis of 2008 would also reach Greece, as it
happened after one year, even if Greece had not made investments in Iceland as a lot
of other countries had.

The problem began in 1981 when the government tried and finally
accomplished to decrease the unemployment in big levels, following however
the policy of engagement in the public sector and their payment with Danish.
Thousands executives and not, are engaged in all public services of state, a
policy that found worthy imitators in all political spaces. A regular
acquaintance in all of us from the season of Ottoman domination, said roysfet,
that was continued with incomparable eagerness and from the first political
parties of recently established Greek state.

Another reason of this crisis was also the political corruption and opacity of
transactions, thing that happens in a lot of countries with entrusting of big
economic work in businessmen, governmental friends and other factors which
for the entrusting of work gave and give still big monetary sums under the
table in the mediators governmental employees. The scandals of political
corruption in Greece constituted cover page of the newspapers the last 30
years with reports even for the ministers. Still the huge expenses for
equipment that were realised took into consideration the safety of country and
the balance of forces led to a waste of public money for the purchase of
useless and very expensive arms.

Furthermore, a big problem that constitutes and one from the main reasons of
crisis is the tax evasion. From the season of foundation of Greek state the tax
evasion constitutes a constant arrangement in Greece. Naturally the tax
evasion does not come so much from the function but mainly from the
finances powerful social layers and especially from enterprises, businessmen
and professional from all branches. The last 30 years, thousands luxurious
villas, yachts, luxurious cars have filled Greece with a new generation of rich.
Illegal rural residences were created in forestall spaces and beaches, but
reasons of public interest were almost unverified.

Another fact that has contributed in the crisis was also the unverified lending
from banks. With the appearance of credit card Greeks began to spend
irresponsibly for refrigerators and cookers up to cars of luxury and ships. As a
result billions was lost by these lendings providing that many were unable to
pay the installments. Therefore thousands cars and home were confiscated
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because of the weakness of arranging the loans.

Also, a basic reason of the current crisis that has affected Greece and other
European states as Portugal and Spain is also the globalisation of economy.
The phenomenon of globalisation affected Greece where a lot of monitoring
local and foreigners preferred investments in cheap markets in countries with
cheap workforce, even if the medium wage in Greece is from the lowest in
Western Europe. A lot of Greek businessmen made factories in the Balkan
countries and thousands local enterprises closed.
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4) Greek crisis and income inequality
Income distribution has experienced a lot of changes in the last decades. Two of the
reasons of income inequality are first the technological change, as the main factor of
changes in the wage and as a secondary cause we have globalization.
Growing inequality has contributed to the imbalances that caused the crisis, since
between the richest and poorest economic classes of Greece society opens more and
more social gap, resulting Greece currently to own one of the worst places at
European level, regarding the “economic inequality” of citizens.
4.1) Importance of income for Greek economy
The unequal distribution of income can lead to financial crisis, because low income as
inequality widens it forces to borrow more and more money, which provide their
surplus with higher incomes, consequently increasing their profits, and aggravated the
income deficit. Within such a powered positive cycle, the economic imbalance and
crisis are not far.
Income inequality can lead to less economic growth, while redistribution of income
does not damage, but instead helps an economy. There was evidence that very high
taxes or transfers to the poor could harm growth. By reducing inequality the
redistribution would also help economic growth.
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4.2) Effects of crisis on income
Negative effects:
a) For decades the perception of economists headed by liberal faculty and
ideas of the American economist and Nobel laureate Milton Friedman,
who supported the theory that the more the governments decrease the
taxation of the rich, the protection of workers and the distribution of
wealth, the more they would thrive. The faculty declared the superiority of
free markets, without ever hiding distrust towards state interventions and
state policies to redistribute income in particular. Its supporters argue that
economic policy which has developing and not redistributive character,
eventually favors the weaker social groups. In contrast, according to them
the redistribution discourages high incomes and businesses at the expense
of society.
b) Based on the data of 2012 ( 2011 income ), published by the Hellenic
Statistical Authority for "economic inequality " in Greece, the income
share of the richest 20 % of the population is 6.6 times greater than the
income share of the poorest 20 % of population. The opening of the "gap"
between the richest and the poorest, demonstrated by the fact that in 2010
(2009 income) was 5.6. Also, 25 % of households with the lowest income
holds 8.7 % of the total national income (in 2011 it held 9.4 %), while
households with the highest incomes account for 47 % of total national
income. At the same time, economic inequality for those aged 65 years and
older is estimated at 4.5 (on a par with 2011), while for those under 65
rose to 7.4 from 6.3 in 2011. Based on the list compiled by the Hellenic
Statistical Authority, according to the index of income distribution
(S80/S20), "winner" of the economic inequality is Spain (7.2), while
Greece (6.6) lies in second place among the European countries which
have been examined. According to the rate GINI, Greece is the 4th worst
(in the worst position is Latvia with 35.9% and at best is Norway with
22.6% in 2012).
c) After the Greek economic crisis, income inequality has declined in Greece.
The GINI coefficient decreased from 0.33 in late 1990’s to 0.31 in the late
2000’s. The ratio of disposable income of the richest to the poorest has
decreased from 9.7 to 7.4.
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This chart represents the GINI indicator for Greece and for the time period from 1960
up to today. It represents the first period from 1981 up to
roughly 1987 the indicator GINI is regularly inclined. It was then in 1987
when the taxation had gone up for enterprises for about 45%. However,
from 1990 and afterwards, with “moderns”, GINI begins to take the opposite
course to the top. Comparing the prices of this indicator today, in Greece it appears to
take the higher value. Through this example it becomes obvious that unequal
distribution of wealth constitutes the basic imprint of globalisation. Which
however are the mechanisms behind the reorganization? The main mechanisms are
tax political and the public education.
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5) Conclusion
Inequality has played an important role in the origin of the lack of equality that
appeared in the crisis, as well as in the demand for the assets in which the crisis broke
out. Present policy tries to reach the cutting wages in a recession, but more wage
growth is a required aspect for a balanced economy. In conclusion, we come to the
fact that increasing inequality, in interaction with financial deregulation, should be
considered as the main causes of the crisis.
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6) References
D: http://digilib.lib.unipi.gr/dspace/bitstream/unipi/5286/1/Gogos.pdf
E:
http://el.wikibooks.org/wiki/%CE%9F%CE%B9%CE%BA%CE%BF%CE%BD%CE%BF%
CE%BC%CE%B9%CE%BA%CE%AE_%CE%BA%CF%81%CE%AF%CF%83%CE%B7.
_%CE%91%CE%B9%CF%84%CE%AF%CE%B5%CF%82_%CE%BA%CE%B1%CE%B
9_%CE%B1%CF%80%CE%BF%CF%84%CE%B5%CE%BB%CE%AD%CF%83%CE%B
C%CE%B1%CF%84%CE%B1
G: http://gini-research.org/system/uploads/447/original/Greece.pdf?1370090519
K:
http://www.koolnews.gr/%CE%B5%CE%BB%CE%BB%CE%B1%CE%B4%CE%B1/terasti
a-eisodimatiki-anisothta-stin-ellada-stis-xeiroteres-theseis-se-eyropaiko-epipedo/
N: http://www.naftemporiki.gr/finance/story/779224/dnt-i-eisodimatiki-anisotita-blaptei-tinanaptuksi
P: http://pmeletios.com/ar_meletios/oikonomia/oikonomikh_krish.html
S: http://www.southeast-europe.org/pdf/03/DKE_03_G_E_Bartol-Letica_The-First-GlobalFinancial-Crisis_Maria-Koutoulakou.pdf
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