Mismanagement of Fiscal Policy: Greece’s Achilles’ Heel

Case Solution

Tulsi Jayakumar
Ivey Publishing ()

In December 2016, the indebted Greek government announced the distribution of a hefty “Christmas gift” to low-income pensioners, a one-time bonus that would cost the government € 617 million. These costs were in addition to the suspension of VAT increases in some Greek islands. These plans clearly violated the terms of a rescue package for Greece from eurozone countries in 2015, which forced Greece to implement austerity measures and meet certain budget targets. What was the reason for Greece’s economic difficulties and why did the debt-to-GDP (gross domestic product) ratio rise to the current triple-digit figure? With an imminent exit from the euro zone, how could the country’s government solve Greece’s long-standing budget problems?

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