Greece : A Common Euro Zone

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In 1992 the Maastricht Treaty was developed by the European Union and signed by 12 member nations to create a common Euro Zone. This Euro zone uses a single currency called the Euro, in hopes that this currency will make transactions across all member nations’ trade and exchange easier. However, no one could have imagined how big of an impact the down fall of a nation’s deficit could have on the Euro Zone, until Greece signed the Maastricht treaty in 2002. When the Greek government came on to the Euro Zone, Greece’s budget deficit and spending habits came along with it too. In order to join the Euro zone, Greece prevented the Euro zone countries from knowing its true budget deficit, inflation, interest rates, and other monetary…show more content…
Year after year, Greece continues to receive bail out from the European Union. Other countries neighboring Greece, like Italy, began to experience the debt crisis and eventually needed a stimulus bailout from the European Union too. This domino effect among countries taking loans caused the borrowing interest cost of Europe to increase and the Euro currency to further devalue. As the Euro devalues and Greece fall further in debt, investors all over the world were afraid to invest in Greece because they will lose money or Greece will not be able to pay them back. To save the Eurozone countries, the European Central Bank (ECB) stepped out of its traditional role of maintaining price stability, setting key interest rates, and controlling the Euro supply (Alessi, 2012). ECB was the only institution capable of intervening and making decisive decision on how the debt crisis should be handled. However, critiques, like Germany, oppose ECB for getting involved in any fiscal activities. ECB, wanted to be a lender of last resort like the US Federal Bank of Reserve; such as printing money and lend money to countries or buy government bonds to help relieve the debt crisis. This did not happen until 2010 when Greece really was in deep trouble. The former president Jean-Claude Trichet and the ECB finally initiated a Securities Market Program; in which the ECB started purchasing the Greek’s government bonds on
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