Beware of Greeks Bearing Bonds

a) The passage I was most interested by was the discussion about Greek taxes. I was shocked that in 2009 Greece stopped collecting taxes because it was election year. While I am aware that politicians will do a lot (some may do anything) for a vote, disintegrating taxes is absurd. However, it seems to be a commonality in Greece, as was revealed in one of the interviews that ““The first thing a government does in an election year is to pull the tax collectors off the streets.” The estimations that two-thirds of Greek doctors reported incomes under 12,000 euros a year is another fact that I was startled by. However, it’s explained that the reason so many Greeks evade their taxes is because of the inefficient legal and justice system; Greek courts take up to 15 years to resolve tax cases. Ultimately, I’m just blown away that the government did not think about the long term effects of all of these practices.

b)The financial crisis in Greece affects the rest of Europe because Greece is in debt to many European countries. If they default on their loans, “then the European banks that lent the money will go down, and other countries now flirting with bankruptcy (Spain, Portugal).” This also has a great effect on countries like the UK for instance that are offering Greece bailout money in order for Greece to stay in the EU and keep the euro as their currency. The UK is dishing out millions of tax payer dollars to Greece when the UK is not in a position of economic strength themselves. Ultimately, whatever decision Greece makes will be felt greatly by its fellow European nations.

c)According to the equation GDP= C  + I + G + E - I, GDP in the short-run would significantly decrease. Increasing taxes would cause consumption to decrease and thus result in a decrease in GDP. The affect is the same if the government were to decrease government spending; it would cause GDP to go down. Investment is also likely to go down as businesses will actually have to pay taxes and be unable to seek governmental assistance.