Greek/World Economic Crisis
and Public Sector.
Students:
 Natalia Iasonidou 2390
 Marianna Efstathiou 2381
 Konstadinos Kalaidzidhs 2161
 Myrto Georgopoulou2357

Content
1. Introduction
2. What does “economic crisis” means?
3. How did the debt started to form?
4. What does the public sector incudes?
5. The global economic crisis.
6. Is necessary to reduce the public sector?
7. How can to stamp out corruption in the public sector?
8. There relative size of the state and economic development
9. How the financial crisis effect the public sector and the economy?
10. how can public sector lead to economic growth (epilogue)

What’s the economic crisis?
As start, we need to understand what the economic crisis is. By definition, economic
crisis its situation in which a country experiences a sudden swan dive caused by a
financial crisis. The economy will likely deal with a falling GDP, a drying up of
liquidity and unstable prices.

How did the debt started to form?
The 1920 was known as a prosperous time, but that didn’t reflect the actual truth. That
decade, it was introduced to the public the instalment buying and credit cards. The mentality
of the “buy now, pay later” was the start of the financial debt. The financial crisis of a
country is based in the same principals.
 What does the public sector includes?
The public sector differs depending on the country and the way that the government operates,
but in most countries it includes general government, public corporations and organizations.
For example, the public sector provides services and goods for the whole society and not for
some individuals. Such services are the army, police, public education, hospitals, public
transport, roads (lighting, bridges) etc. These goods and services are funded by taxes imposed
by the government to households and corporations. During the economic crisis that the world
faced from 2008 to 2010 the public sector was the focal point of the measures which were
implemented.

Global financial crisis.
Specifically, the impact on the public sector was that the expenditures decreased and the
government revenues decreased, deficits were gathered and the national debts rose
significantly, and not only tax assistance decline but also government spending. Moreover
the crisis affected the incomes of the economically disadvantaged people who were already
been stroke by unemployment. There was also increase in loans, reduction in employee
benefits, increasing job insecurity, reduce in pensions, some services were no longer available
and deep wage cuts were imposed. What was the starting point though? The compass takes us
in the western hemisphere and specifically in USA. The financial crisis began in 2007 in the
USA due to the loose monetary policy of Federal Reserve Bank (FED), the low interest rates
and low investment returns which resulted in a fall of real estate prices and the purchasing
power to be equivalent to the overcharges. Furthermore the USA authorities tried to save the
two "semi-public" enterprises by granting mortgages (Fannie May and Freddy Mac),
nevertheless decided to let Lehman Brothers to go bankrupt in 2008 which resulted in panic
and freeze in the interbank market.
Similarly in 2008 the crisis became more noticeable not only in the USA but it spread to other
countries such as the United Kingdom. The investment bank Northern Rock was nationalized
to avoid bankruptcy while the FED proceeded to “inject liquidity” of $200 billion gaining the
temporary market confidence. And when the climate started to change and to be more
optimistic the countries didn’t figure that the crisis would pass in two other main economic
sectors such as the oil market and the prices of food which had been sharply increased
causing economic impact worldwide. Specifically the European leaders agreed to support
European banks, for example Germany announced support package of 50 billion for German
banks and Denmark announced that it guarantees all deposits.

Is necessary to reduce the public sector?
It is often stated that the public sector in Greece is very large and consume tremendous
amount of resources. The main problem in Greece is not that the public sector is very large
, but that money is not spent effectively. The quality of public service can be improved and at
the same time save money. This money can be used to finance other public services whose
funding is inadequate, but important for competitiveness, such as investments in infrastructure
and human potential. There should be an indicator of productivity public sector, as in any
private company and public services should be evaluated based on how achieve specific goals
productivity. The public sector is my nature less productive than the private and the services
offered by the public can be provided more efficiently by the private sector. Acceptance of
this argument automatically implies acceptance of terms for reducing the size of the state.
Another matter that has caused problems in the public sector is the bureaucracy. In Greece,
the amount of time spent for completing a simple project is protracted. For more efficient and
faster results in the public services we need an electronic system to provide us with time and
money saving. Moreover, the financial crisis is caused by corruptness. Clientelism and
canvassing are too of the many reasons that have caused the economic crisis, and also one of
the reasons that it will be hard to see prosper.
Furthermore , these studies generally show that the smallest amount of public expenditure as a
percentage of GDP , contributes positively to economic growth. The overall size is an
important factor , but what matters is the composition of expenditure. As has been established
by several studies consumer spending rather have a negative impact on economic growth,
while investment costs have a positive effect . Investment in physical capital seems to have
less effect . On the other hand, consumer spending shown to contribute negatively to
economic growth, as well as social transfers , but with an explanation for the latter. Although
the total size of these costs appear to adversely affect , a closer analysis shows that they have
a positive effect on labour productivity .

How can to stamp out corruption in the public sector?
As tax evasion corruption is commonplace in Greece because there have not enacted enough
incentives to prevent. IN particular it is necessary to take more stringent penalties ,the
simplification of the institutional framework for trade state and society and the establishing
greater anonymity in these transactions.

There relative size of the state and economic development?
The economic development of a country is not only influenced by taxation and public
spending. Many studies in recent years have highlighted the importance of institutions and the
orderly functioning. It seems that countries with large public sectors have institutions that
provide greater cost effectiveness , much better quality of service, better systems of education
and social protection and greater potential for innovation .

How did public sector affect the economy?
An important aspect of the impact of the economic crisis is how payment in the public sector
responds and what the effects on the income distribution are. As a result of the crisis, it’s
logical the payment rates to fall dramatically. Concerning salaries, we can clearly see that
they are on the fall since 2009, the year that crisis hit Greece. Also, we have major decrease
on the retirement benefits and we have a raise of the retirement age, that is supposed to
reduce the expenses of the public sector. Countries face a demographics problem as retirees
live longer and there will be fewer young/new workers to support them and be part of the
production procedure. Caused by these financial problems, the rates of the unemployment are
raised to the extreme. The public sector has reduced the employees to the minimum.
Furthermore, we were forced to raise the taxes on the exported products which made the
international trade difficult and minimized the total revenue of Greece. Also, we see an
increase in the income tax and the property tax, aftermath of the financial crisis. Moreover,
Greece was forced to borrow money to cover some of the expenses that it had gathered over
the years and finally led to the crisis. This had as a result making the economic depth bigger
by the enormous interests that were agreed.

What can help?
For economic growth to come, we need a more efficient tax system that can provide revenue
for the country that is not against a particular economic minority. Percentage of the taxes
must vary for every different economic situation. Also, a decrease of the public sector’s size
is a big matter for the escape from the financial crisis. Money must be spent in productive
projects that will make Greece a more competitive country and the increase of the GDP. The
bigger GDP means that we will be able to pay off our economic debt faster and that the
leaving situation of the people will be more acceptable. A more effective way to resolve the
problems and bring back prosperity is to have more control and educated employees that will
be able to resolve depravity and the introduction of stick penalties system that will aim to the
punishment of those who try to override the low. Lastly, a major factor is also the export of
products and the overall exploitation of the tourism and the natural products that thrive in our
land.
References.
•
http://www.investorwords.com/3947/public_sector.html
•
http://ftp.iza.org/dp4948.pdf
•
http://www.ebooksmagz.com/pdf/the-public-sector-in-the-crisis-352501.pdf
•
http://www.cbc.ca/news/business/pension-crisis-a-global-problem-1.2478858
•
http://whatis.techtarget.com/definition/public-sector
•
http://www.tovima.gr/finance/finance-news/article/?aid=257482
•
http://prowthisi.blogspot.gr/2010/05/blog-post.html
•
http://www.ineobservatory.gr/sitefiles/files/report4.pdf
•
Annual macroeconomics database