Greek Economy and the Eurozone

Ever since Greece joined the Eurozone their economy has been falling apart. Greece was the last country to join in 2001. The euro replaced their modern currency of the drachma. Today Greece is still trying to fight to pull out of the deep and horrid debt they are in. Greece could become the first country to leave the Eurozone, due to its struggling economy and financial crisis, leaving the European Union in debt while helping Greece crawl out of their terrible nightmare.

The Golden Age of Greece is well known for its sculptures, buildings, rulers, and philosophies. Today, modern Greece is known for having economic crisis's as well as political turmoils. Greece's problems began when they joined the European Union. Greek drachma was officially replaced by the euro when they joined. Greece approved the euro in 2001, not knowing what they were getting in to. When the Prime Minister Konstantinos Karamanlis came to power he realized that the budget deficit was not 1.5%, but 8.3%. That outstanding amount greatly hurt the economy. By 2008, Greece's tax collection crumpled and unemployment was at an all time high. Unfortunately, by 2014, 30% of Greek's population did not have a job (Greece Debt Crisis). In contrast, today's Greece is a complete different from the Golden Age. Greek unemployment soared as austerity took its toll.

Greece's best chance of surviving their economic problems lied in their joining of the European Union or the "E.U." The E.U. is a political and economic union made up of 28 European countries that was created following the end of the Second World War (“The E.U.,” n.d.). In the guidelines laid out by the

A country who’s economy was devastated by the monetary exports demanded of them by the second world war, Greece has shown great financial fluctuation and vulnerability within the last 80 years, resulting in one of the most disputed economic records in the history of the European Union. Dubbed the ‘Greek Economic Miracle’, Greece showed great resilience throughout the 1950’s and 1960’s, with credit to their superior food trade and shipping industry, continuing to produce high levels of economic growth in contrast to others that had also been affected by the war. With the Treaty of Accession (1979) entering into force on 1st January 1981, Greek’s commitment to the European Communities (European Union) proved pivotal regarding it’s controversial qualification into the Eurozone in 2000. Owing to this, in an attempt to recover the unstable foundations of its economy, Greece has since been subject to various regulations and measures of austerity, leaving what was once a highly commended country both financially and socially, in a deplorable state of desperation.

The roots of Greece’s economic problems extend deep down into the recesses of history. After the government dropped the drachma for the euro in 2001, the economy started to grow by an average of 4% annually, almost twice the European Union average. Interest rates were low, unemployment was dropping, and trade was at an all-time high. However, these promising indicators masked horrible fiscal governance, growing government debt and declining current account balances. Greece was banking on the rapid economic growth to build upwards on highly unstable foundations. In 2008, the inevitable happened – the Greek debt crisis.

The economic crisis of 2008 in New York had ripple effects around the world, causing deep structural problems within the European Union to crumble the economies of several countries. These countries, known as the PIGS, are made up of Portugal, Ireland, Greece, and Spain, and collectively hold most of the sovereign debt problems of the European Union. After fast growth early in the decade, these countries were spending too much money and not securing their own banking sectors with enough capital. Soon, the debt the PIGS owed caused massive problems throughout the EU, and Germany and France had to come to the rescue of these poorly managed countries. (Greek Crisis Timeline, 1) Now, in 2012, the issue has yet to be fully resolved. Greece is still sinking, and a massive bailout for Greece's banks is required. The debate is whether Germany should continue bailing out Greece and collecting interest on its loans, or whether Greece should try to separate itself from the broader European Union, in an attempt to manage its own finances and declare bankruptcy in order to save itself from crippling interest payments. Each path offers an escape from the present situation that Greece finds itself in, but only the path of bailout results in a harmonious European Union. If Greece fragments off from the EU, then the entire union is weakened as a result. I believe that Greece should accept the terms of the bailout that Germany has provided, and should undergo several years

One cannot understand the Greek Financial Crises and the general European Financial Crises without understanding the history of the European Union, the creation of the euro, and the Eurozone. The countries involved in the European Financial Crises were Spain, Portugal, Iceland, Ireland and Greece. The Maastricht Treaty created the European Union in 1993. The treaty gave citizenship to all people living in the 28 member countries. This treaty led to the creation of the Euro. In order to join the Eurozone, each member country must maintain sound fiscal policies. Essentially, each country must limit national debt to 60% of gross domestic product and limit annual budget deficits to a maximum of 3% of GDP. The main reason for the greater European Financial Crises and Greece 's crises was the country 's violated the treaty restrictions. Spain, Portugal, Iceland, Ireland and Greece were unable to maintain spending within these limits. Additionally, the European Union has a monetary union but does not have a fiscal union. Each member country maintains its own independent tax and spending policies. The absence of a common fiscal tax for every member country in the EU is the reason for the current crises.

To Greece, the potential idea of entering the Eurozone was one that was too tempting. A key benefit would be the reduction of inflation rates in the short term. “By joining a monetary union with a credible anchor country or set of countries, a client country eliminates the inflation bias arising from time inconsistency in monetary policy” (Alesina & Barro, 2002). The inflation rate falls to that of the lowest member nation - representative of the credibility and reputation of the German banks and the entire OCA. Hence, a country such as Greece, which lacked the regulation and financial supervision, jumped at the opportunity of sharing the same credible status Germany worked hard to maintain.

It’s no secret that Greece is in quite a predicament. The country is currently in the midst of a crisis that reaches not just all parts of Greek society but a global stage as well. Is Greece at the point of no return, will they end up defaulting on their massive debts from combined lenders, breaking away from the European Union (EU) and the singular monetary system of the Euro? While many people think that is the way to go for Greece, the government could also find solace in the examples of other EU countries. By looking at how these countries were in the same situation as Greece yet have managed to make the necessary spending cuts and social reforms, and in doing so have regained control. This paper, provided will be an overview of the

Greece, the overloaded with enormous debt, defaulted and could not pay 1.5 billion euros ($ 1.7 billion) to the International Monetary Fund on Monday (June 29). The country stands today in front of two options; either to say ‘yes’ to the bailout plan or reject it and proceed into the unknown. ‘Yes’ vote would mean the Greeks accept the terms of the creditors which require Athens to continue austerity policies, tax increases (especially on the middle and wealthy classes), freeze early retirement programs, accept direct European supervision on its finance; and last but not least pay off the debt and interests to the lenders without delay. ‘Yes’ will open the door for creditors to extend loans and financing to Athens and, thus, solving the problem from the standpoint of the troika (European Central Bank, International Monetary Fund, and the European Commission). But this is a very long term program that requires the Greek people to be very patient and bear with its toughness knowing that their economy is weak, the country’s debt exceeds 312 billion euros (177% of GDP), trade balance suffers constant deficit (-1.8 billion euros in last May), while more than 25% of the labor force is unemployed, and about 40% of Greek young people have no job!

In October 2011, eurozone leaders meeting in Brussels agreed on a package of measures designed to prevent the collapse of member economies due to their spiralling debt. This included a proposal to write off 50% of Greek debt owed to private creditors, increasing the EFSF to about €1 trillion and requiring European banks to achieve 9% capitalisation.

On this method alone, both parties have benefits to gain and ground to potentially lose, but there are other important areas that may make this solution more appealing and beneficial.

Greece is currently undergoing a considerable hindrance regarding the economic recession. Huge public debt and the government 's decision to borrow from the International Monetary Fund and the European Union has changed the

As a result of the global financial distress, the GDP growth rate dropped to -4.3% and caused the recession in Greece, and similarly in the whole Eurozone. Although other European countries succeeded in limiting the economic damages, Greece’s austerity policies and debit crisis protracted the economic downturn wherein the GDP growth rate bottomed at -9% in 2011 (Fig.2).

On 2nd May 2010, The IMF and EU agreed to infuse 110 billion Euros in the Greece economy over a period of three years, to avoid a default. In exchange, Prime Minister Papandreou committed to severe austerity measures, including 30 billion Euros in government spending cuts and tax increases on the Greek population.