"Europe must prevent Greece from becoming an out-and-out catastrophe and make sure that the same fiscal 'remedy' is not applied to other weak economies" -- Franziska Brantner
The burden of debt in the European Union, especially in Greece and Ireland, is detrimental to the continent's economy and people. Not only is it an issue throughout Europe itself, but it has become a dominant issue in global economics as well. As these European governments struggle to get back on their feet, the fate of the euro is clinging for life. It has become clear of the extremely high deficits, some at over 100% GDP, which are attached to several EU countries. This European crisis is a continuation of the global financial crisis, but also an issue
…show more content…
The introduction of the euro also allowed Greece to borrow money due to the lowered interest rates. In 2008 when the global financial crisis took place, two of the country’s largest industries, tourism and shipping, were badly affected. This resulted in the countries revenues dropping by 15%, and the beginning of a fall into an irrecoverable debt. In order to keep within the monetary guidelines of the EU, Greece has been discovered to have deliberately misreported the official economic statistics of the country. It was found that Greece paid banks, such as Goldman Sachs, hundreds of millions of dollars to hide the true level of borrowing which took place (ABC News). This then enabled Greece to spend beyond what it was ‘permitted’ to, and hiding the actual deficit from the financial leaders overseeing the spending of the EU countries. Due to this over-spending and running on a false economy, Greece has plunged itself into an incomprehensible debt worth 113% of their GDP, which is equivalent to over $250 billion (CIA World Factbook). As Greece was without a bailout agreement, it was likely that they would have to default on some of their debt, meaning that it would not be paid on time, and potentially not paid at all. Economic analysts stated that there was somewhere between a 25%-90% chance of them being forced to default. This would result in Greece only paying back 25%-50% of what they owed, and this would effectively remove Greece from the euro, as they would no
Despite the negative outcomes of a Eurozone breakup, it is worth to note that it may be the best solution to the current debt crisis. At the moment, the crisis has reached the stage where it may no longer be both financially and politically feasible to keep the whole Eurozone together. A prime example is Greece. Financially, the Eurozone may be better off letting Greece go, as efforts to reduce its national debt by offering exorbitant bailouts have been a huge drain on funds. Political wise, the Greek public has rejected the austerity measures imposed as a condition for the bailouts and have even voted for political parties which rejected austerity. Thus the funds used to bail out Greece can be better used on larger, more integral Eurozone countries which are more determined to reduce their debt levels.
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 financial headlines of 2012 were prevalent with the tribulations of the Greek economy. Its problems, in the eyes of many of the other nations of the euro zone, were not only negatively impacting the prosperity of the Greeks, but also the viability of the European Union. The country as a whole requires a major restructuring. Not only are drastic changes needed in financial and economic policies, but the Greeks need to understand their attitude of government entitlements cannot be sustained. The mismanagement of the Greek economy is also evident in its place in the global market community. It has not found the path that a county needs to follow to become an active member of the vibrant,
"Europe must prevent Greece from becoming an out-and-out catastrophe and make sure that the same fiscal 'remedy' is not applied to other weak economies" -- Franziska Brantner
In 1999, ten European nations joined together to create an economic and monetary union known as the Eurozone. Countries, such as Germany, have thrived with the euro but nations, like Greece, have deteriorated since its adoption of the euro in 2001. The Eurozone was created in 1999 and currently consists of eighteen European nations united under the European Central Bank and all use the euro. The Eurozone has a one point six percent inflation rate and an eleven point six percent unemployment rate in 2014. Greece joined the Eurozone in 2001 and was the poorest European Union member at the time with a two point six percent inflation rate3 (James, 2000). Greece had a long economic history before joining the Eurozone. The economy flourished from 1960 to 1970 with low inflation and modernization and industrialization occurring. The market crash in the late 1970’s led Greece into a state of recession that the nation is still struggling with. Military failures, the PASOK party and the introduction of the euro have further tarnished Greece’s economic stability. The nation struggles with lack of competitiveness, high deficit, and inflation. Greece has many options like bailouts, rescue packages, and PPP to help dig it out of this recession. The best option is to abandon the Eurozone and go back to the drachma. Greece’s inflation and deficit are increasing more and more and loans and bailouts have not worked in the past. Leaving the Eurozone will allow Greece to restructure and rebuild
The involvement of the “troika” i.e European Commission, European Central Bank and International Monetary Fund has helped Greece for two major bailout loan programs but in exchange has been dictating their domestic policies. Policies ranging from tax reforms, they have controlled wage cuts to the changes in regulations of even small domestic products. Failure to comply with Troika members may lead Greece to face a major default and may also lead to Euro exit but on the other hand upholding their policies is crushing the economic growth
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.
In Georgios P. Kouretas and Prodromos Vlamis 's work, The Greek Crisis: Causes and Implications, the authors indentified "at least three key players," which led to Greece 's continued financial crisis (Kouretas and Vlamis, 393). The first and most responsible institution was the Greek government and its feeble political system. Throughout the years, the national government mismanaged the domestic economy to the level that the economy was adding on government debt at a rate faster than any other eurozone nation. Combined with its rapid increase was its debt/GDP ratio was already greater than 100% by the time of the crisis. In order to combat this overspending, Greece implemented tough austerity in both its fiscal and economic policies (in order to lower its budget deficit and debt/GDP ratio) while relying on 110 billion euro package, provided by the EU and IMF, to finance its short-term operations. As a consequence of its large budget deficit, the financial market downgraded Greece 's credit rating to the point that the country had to withdraw from the international bond markets (due to extremely high interest rates). The final major factor lies in the response of both Eurozone governments and the European
The economic crisis within the Eurozone has grown rapidly for the past five years, and members of the European Union struggle to enact any effective measures to halt or reverse its effects. Perceived booms in the housing markets were really only bubbles which popped and sent entire national economies spiraling downward into recession. Nations of the Eurozone have accumulated massive public debts, far larger than the 60% of GDP maximum specified in the Stability and Growth Pact. In 2011, Greece’s debt reached an unbelievable 170.3% of its GDP. Economic punishments are the specified consequences for violating this regulation, but the pact has not been adequately or consistently enforced. So many states have fallen past the debt limit that
The Greek debt crisis has been an ongoing problem officially beginning in 2009, but later discovered to have begun in the 1990’s, and what began as a national disaster has quickly spread to become a worldwide catastrophe. The steady income of many Greeks has declined, levels of unemployment have increased – to the highest in the EU - Elections and resignations of politicians have altered the country 's political landscape radically, the Greek parliament has passed many austerity
In what came to be known as the “Eurozone Crisis”, many peripheral countries, particularly Greece, Ireland, Italy, Portugal, and Spain, put in place policies of fiscal consolidation, aimed at tax hikes and budget cuts, and structural reforms along the lines proposed by the EU leaders and the ECB. The large budget deficits and high sovereign debts
Maybe his words are right, but it is also necessary for us study Greece first if we need to know what is really happened for the euro zoon. As Reuters (22 Dec 2009, P, 1) shows, in early 2009, the new Greece government had exposed that the true budget deficit of Greece would be 12.7% not as the government had announced before. After the cheating activities coming to light, the three international credit rating agencies, Standard & Poor 's, Moody 's Investors Service, and Fitch, had downgraded the Greece to a low standard one by one for its large sovereign debt. It is because of this event that the whole euro zone came to fell into the crisis, in turn, and the economy of euro zone was hit hard. It might be an economic problem when we saw it at first sight, the huge sovereign debt which was as high as 12.7% of its GDP in 2009, and its economy definitely cannot afford the huge debt (Wilkinson 2012). This might be a reason for the market holding a pessimistic altitude of the debt default.
The Greek government-debt crisis has seldom seen a break from the public eye since its first bailout loan in 2010. With a sweeping change in political standing, the question now looms as to whether the newly elected Prime Minister, Alexis Tsipras should pull the plug on Greece’s membership in the Eurozone. In the most part, International financial and political institutions such as the International Monetary Fund (IMF) and the European Union (EU) are helping economic recovery in Greece. Through a variety of implemented fiscal and social measures, Greece will ultimately be spared from a detrimental Grexit, seeing a sound economic outcome through means of democratic legitimacy.
During the year 2007, Greece maintained its stable economic growth as one of the only EU countries to avoid the negative impact of the global financial crisis. As a result of its marginal exposure to toxic assets and the stimulus plan enacted by the government, Greece was affected only indirectly.
"Europe must prevent Greece from becoming an out-and-out catastrophe and make sure that the same fiscal 'remedy' is not applied to other weak economies" -- Franziska Brantner