Study On The Greek Sovereign Debt Crisis In The Perspective Of Market And Government Failure

Greece witnessed its sovereign debt crisis in October2009, which made it become the first developed country involved in a sovereign debt crisis since World War II. The crisis spread fast to the entire Europe, causing many countries within the European Union continually falling into it and eventually resulted in the European debt crisis. This crisis fatally hit the Greek economy, followed by a prime minister change as part of the consequence. It also caused a significant fluctuation to the European and global securities market and the foreign exchange market, exerting extremely negative effects on the world economy recovery. In a word, the Greek sovereign debt crisis is mainly resulted from the market failure and government failure.With its economic booming in recent years, China’s foreign debt size has been rising rapidly, causing the central and local governments an increasing debt burden. In an open economy, the boundary between internal and external debts has become vague, as they both belong to the sovereign debts. To prevent similar sovereign debt crisis from taking place in China and ensure the further stable development of its economy, the study of Greek sovereign debt crisis turns out essential and crucial. In the meanwhile, as China has its market economy transformed from a planned economy with still large amounts of governmental intervention, it becomes more valuable to study on the debt crisis from the perspective of market and government failure.With theory well integrated with empirical analysis, the thesis made a positive exploration of the origins, causes, evolution, characteristics, impacts and lessons of the Greek sovereign debt crisis, focusing more on its causes from the perspective of market and government failure in particular. The main reasons for the market failure include the imbalance of internal industrial structure, the unemployment and high inflation, the international investment capital speculation and the non‐rational response from the public; While the main reasons for government failure lie in the high social welfare, governmental officials corruption, tax evasion, the fraud economic data initiated by the government, plus the systematic defects of the monetary and fiscal policy. These two failures together eventually attributed to the outbreak of the Greek sovereign debt.The entire thesis is made up of six chapters with58,000words around. The main frame is as follows:Chapter I: Introduction to the background, current existing research progress in the relative fields, theme raising and the specific research methods listing.Chapter II: Theoretical part with specific analyses on the phenomenon of and causes for the market failure and government failure that led to the Greek debt crisis, and corresponding ways of how to prevent and improve them.Chapter III: Introduction to the origins, evolution, impacts on the European and global economy, as well as the financial aids from the International Monetary Fund and the European Union, so as to form an overview on the Greek debt crisis.Chapter IV: Detailed analysis on the causes of the Greek sovereign debt crisis from perspective of market failure. Firstly, Greece suffers from a serious proportion imbalance among its three domestic industries, which resulted in severe losses to industries that are heavily relying on external markets in the financial crisis and eventually the domestic economy collapse. Secondly, the serious domestic unemployment and inflation pushed Greek economy into a vicious circle; Thirdly, the international capital speculation against the euro significantly worsened the debt crisis and Greek’s fiscal situation; Finally, the irrational reactions of the Greek people regarding the fiscal policy increased difficulty for the Greek government and European Union to carry forward the financial aids, which led to a far more severe deterioration of the crisis.Chapter V: Detailed analysis on the causes of the Greek sovereign debt crisis from perspective of government failure. Firstly, the all‐around social welfare system increases more and more financial burdens for the Greek government, and drags down the domestic economy; Secondly, fraud economic data was made through a “financial innovation” initiated by the Greek government; Thirdly, the corruption and tax evasion of government officials made the state revenue shrink dramatically; Besides, the excessive issue of Greek state bonds increased the burden of national sovereignty debt; Finally, the not well integrated Greek fiscal policy and monetary policy also significantly attributed to the failure of an effective, timely curb and resolving of the crisis itself.Chapter VI: comes up with a certain constructive ways and ideas on how to prevent similar sovereign debt crisis from taking place in China by suggesting that government be cautious with its market intervention policy and implementation, prevent the "Keynesian trap" and reduce government failures, speed up the manufacturing transformation, increase the level of governmental intervention into the foreign exchange market, so as to eventually avoid the occurrence of the sovereign debt crisis.