Greece – World Economy Assignment Harvard Case Solution & Analysis

Greece – World Economy Assignment Case Study Analysis

Hyperinflation as a cause of Greek Economic Crises

In the fiscal year 1944, the number of challenges has been faced by the government of Greece with respect to the devastated economy as well as the currency undermined by the rampant hyperinflation. The most famous cases of the hyperinflation after the World War II with Greece in the 1940s. The main cause of the hyperinflation in the period of 1944-1947 was World War II which has significantly loaded the country with the loan and dissolved its trade and well as resulted in the 4 year of the Axis occupation.

At the World War II outset, the country Greece saw a surplus in budget for the fiscal 1939 of 271 million drachma but this has reduced to the 790 million drachma deficit in the fiscal year 1947 due to many reasons which includes, trade as well as declined industrial production as a consequence of unexpected military expenditures as well as the scarce raw material. The causes of the hyperinflation in the Greek Economic Crises are listed below;

  • printing money
  • increased debt burden
  • lost faith of citizens on currency
  • issuance of gold franc coins
  • German-Italian occupation

In addition to this, the hyperinflation has begun in the fiscal year 1943, at times when the estimation of the inflation rate in the future caused the country to reject the request of accepting the currency and the government has started to pay in gold franc coins which in turn have stimulate the public of the country to hold wealth in non-currency forms as well as lower the confidence in drachma, reduced the demand for and the elasticity of the domestic currency.When the government of the country in exile have returned to Athens, the ability of them had been restricted for the collection of the taxes outside of the capital as well as ran into substantial refugee and unemployment cost (Toscano, 2011).

In addition to this, it is to notify that the puppet government of the Axis power has imposed the additional cost on Greece that have controlled Greece during its occupation which comprised 4 lac Axis soldiers who has been stationed there as well as a big indemnity owed to the occupiers. Moreover, the substantial declines has been witnessed in the nationalincome of the country from 67.4 billion drachma in the fiscal year 1938 to 20 billion drachma in the fiscal year 1940.

In accordance to the Cato Journal, the monthly inflation rate of the country reached at 13800 percent as of October 1944 with the 20.9 percent daily rate of inflation. The World War II has left the country with the debt due to the fact that the expenses were started covered by government of Greece through printing money rather than taxing the residents of the country.

In addition to this, the major factor that has been contributed in destroying the economy of Greece includes German-Italian occupation due to which the citizens of Greece had lost the faith in the currency as well as the central bank started issuing gold franc coins which have reduced the currency demand to greater extent (Lykogiannis, 2002). To end the crises, the government of the Greece has joined the International Bretton Woods System in 1953 that has fixed the exchange rates through linking the foreign currencies to the United States dollar.

Comparison between economies

China

While comparing the economic situation of the Greece at times of the financial crises in the 1940s with the economic crises faced by china, it is to highlight that the inflation rate of the china peaked at 11 percent in accordance with the Cato Journal. The 6 billionyuan was the highest denomination at time. The nationalist government of the country has taken over the banks of nation and switched to flat currency from the silver standard. Additionally, the government of china has used the currency with core consideration of monetizing the debt burden as well as continually printing the money at times of the war with the japan.

Hungary

In the July 1946, the rate of inflation in Hungary peaked at of 4.19 x 1016% as well as the daily inflation rate was 207 percentin accordance with the Cato Journal. The war time spending of the country sent prices soaring. Additionally, the country has subsidized the private sector or industrystraining the public budget (Badkar, 2011).

Comparison and Persistence

Similarities of Two Crises

Taking into consideration the analysis of the two crises being faced by Greece recently and in past, there are somehow similarity in the driving forces of both crises however the nature of the crises is different from each other but the causing factor are relatable such as the debt burden has been increased due to which the government of Greece.

Undoubtedly, the government of Greece has taken several wrong decisions due which the country had to go through the financial crises which includes printing money rather than imposing tax on the citizen to pay off the debt obligations in the crises of 1940s, similarly the spending of government have resulted in debt to GDP ratio. In both cases, the governmental instability was persistent throughout the crises.

Differences of Two Crises

There are difference in the driving forces of the two crises as in the past crises, the hyperinflation gave been driven by the increased printing of money to pay off the debt obligations. In prior year, the country has gone through the hyperinflation crises which was primarily driven by printing money, increased debt burden, lost faith of citizens on currency, issuance of gold franc coins and German-Italian occupation. In contradiction to the prior year crises, the company has gone through the debt crises which was primarily driven by the launch of the euro currency, reduced demand of the currency, hosting Olympic Games as well as onset of the global economicdownturn.

The two crises has been ended with different considerations. The recent debt crises has been subject to the debt relief by IMF and with strong government fiscal policies and reduced governmental spending, the government may try to end the crises effects soon. On the other hand, the hyperinflation crises in Greece was ended up with the policies of the International Bretton Woods System in 1953 for fixing the exchange rates through linking the foreign currencies to the United States dollar.

The treatment for two different crises makes a difference in the comparison of crises. The different nature of the two different crises which had happened in two different era have led to the different cost to the government as the debt crises have led to the widened the 10 year bod spread and collapse of the bond market of Greece. Also, the crises had hampered the ability of the country to take the debt further. On the other hand, the hyperinflation crises had loaded the country with the loan and dissolved its trade and well as resulted in the 4 year of the Axis occupation............................

 

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