Europe could deal with its shortcomings if it were willing to redesign the map of powers and competencies in a more elegant and coherent way. Technically both can be done. Political vision and will is all that is required. Related Books. Related Topics Greece. Up Front To swap or not to swap? Greece issues 5 new bonds Theodore Pelagidis.
Post was not sent - check your email addresses! Conditions in the euro area during this period facilitated such lending, despite the build-up of the unsustainable deficit.
This meant that Greece could delay difficult structural reforms that had become necessary and may have been unavoidable if cheap funding had not been available during the s. The prevalence of this behavior reveals that rather than being a behind-the-scenes problem, it was actually more of a social norm that was not remedied in time. Eurozone membership helped the Greek government to borrow cheaply and to finance its operations in the absence of sufficient tax revenues.
Compared to Germany, Greece had a much lower rate of productivity , making Greek goods and services far less competitive. The adoption of the euro only highlighted the competitiveness gap as it made German goods and services relatively cheaper than those in Greece. Having given up independent monetary policy Greece could no longer devalue its currency relative to that of Germany.
While the German economy benefited from increased exports to Greece, banks, including German banks, benefited from Greek borrowing to finance cheap imported German goods and services.
As long as borrowing costs remained relatively cheap and the Greek economy was still growing, such issues continued to be ignored. In , U.
As capital began to dry up, Greece faced a liquidity crisis , forcing the government to seek bailout funding, which they eventually received with staunch conditions. Bailouts from the International Monetary Fund and other European creditors were conditional on Greek budget reforms, specifically, spending cuts and higher tax revenues. These austerity measures created a vicious cycle of recession with unemployment reaching These measures, applied amidst the worst financial crisis since the Great Depression , proved to be one of the largest factors attributing to Greece's economic implosion.
Austerity measures also created a humanitarian crisis: homelessness increased, suicides hit record highs , and public health significantly deteriorated. While Greece had structural issues in the form of corrupt tax evasion practices, Eurozone membership allowed the country to hide from these problems for a time but ultimately created an economic straitjacket and an insurmountable debt crisis evidenced by the country's massive default.
International Markets. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. However, the EU and IMF refused to negotiate on the debt, and the EU threatened Greece with being kicked-out of the Eurozone if it did not introduce even more austerity. Despite a referendum opposing more austerity, the Greek government caved in. This includes not being able to afford a decent diet, sufficient heating or electricity or to meet emergency expenses.
Greek livelihoods and lives continue to be destroyed in the name of paying off debts to reckless lenders. When the Greek debt crisis dominated news headlines, the world watched as its population poured on to the streets in protest.
But the demands of the people were not met. These are the financial flows that drove the agenda and left the country in devastating poverty. This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Close Privacy Overview This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website.
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