In recent news, the Greek Debt Crisis continues to escalate further given Greece’s continues debt despite the bailout funds provided by the EU, IMF, and the World Bank. Considered as one of the primary reasons for the on-going Eurozone crisis, the Greek Debt Crisis showcases not just the Greek government’s incapacities to improve its economic status but also the impact of an unstable economy to the remaining members of the Eurozone. Prior to the announcement of the Greek debt crisis, experts had already seen Greece’s economic instability that would prove fatal in the long-run and led to the crisis. However, many did not expect that Greece would fully succumb to its debt and have problems managing the bailout funds provided by the EU, IMF and the World Bank. The impact of the debt crisis not only made it impossible for the Eurozone to stop the domino effect throughout the region but also further brought down the economies around the globe. Unless Greece is removed to the system, a possible recovery for the Eurozone would not be plausible as the nation continues to increase the debt Europe is already in at present.
Before the adoption of the Euro in 2001, the Greek economy was sustained by the government through cheap capital and increased investor confidence that allowed the country to balance out its debts given the increased investment to the country. It enabled the country to welcome the Euro without needing to worry about the country’s increasing debt and losses. Since the 1980s, Greece had accumulated debt from both foreign and domestic institutions just to sustain their economy. However, by the time they had introduced the Europe to the country, the devaluation of the Greek currency had caused small businesses to succumb to losses and eventually doubled the amount of the country’s debt, including public debt, considering that the Euro had a higher value than the original currency. Subsequently, the country had failed to ensure the continuous competition within the country, allowing debt to increase. The Greek government had also failed to ensure that their yearly budget would cover all of the country’s debts, investments, and expenses. However, some have pointed out that the country’s financial budget policy, especially the 1970 policy they used prior to the announcement of the bankruptcy, only led to increased deficit in the sector of public investment. Greece’s incapacity to recover from its flawed economy is also attributed due to the 2008 global economic crisis that eventually influenced the country’s capacity to sustain the impact of the global recession. Inflation and unemployment rates had increased completely in Greece, influencing even investment coming in the country. .
Aside from its flawed economic policy and the effect of the 2008 global economic crisis, the Greek government had also failed to take into consideration the signs in the global and regional market that there is going to be a backlash of its inconsistent and faulty economic policy. Sometime around 2008 to early 2009, there were already signs that both the global and regional markets are deteriorating due to the recession. In Greece’s case, the country’s economy was now experiencing an outflow of Greek bonds as they are sold to member countries. Since the bonds regulate the economy, the losses the country had experienced prompted them to end the transactions. Experts believe that the EU would have noticed the signs of the crisis at this point, however, with the 2009 elections, it was hushed up by the present administration. The EU also failed to see the signs by the time the globe had experience to the global credit crunch that prompted freedom for nations to ease up their debts and realign their economies. However, Greece continued to show signs that it still continues its bond transactions. With the new government elected in 2009 changing Greece’s economic policies, the EU slowly realized that something was amiss. When the Greek government filed its 2010 budget to the European Commission, the Union immediately saw signs that the budget drafts were either tampered or incomplete considering that the country would need to uphold several policies to ensure the continuous use of the Euro. Greece had denied such claims but the EU had already realized the lapses as the numbers reflecting their losses and debts are inaccurate .
Upon the time Greece had finally shown the losses and the growing debt it is currently facing, the EU member states, especially those under the European Monetary Union or the Eurozone, immediately called for a referendum discussing how the debt crisis in Greece would be stopped and would not influence the other nations. The implications of its effects to the EU is great considering the EMU is linked to one another through their common markets and the currency. Spain and Italy became victims of the growing Greek crisis. Germany and France also found that if Greece would not be able to pay its bonds to restructure and aid the country, it is likely that the nation would continue to sink and bring the EMU down with it. In the case of the United States, the crisis’ implications to the country’s own economy is placed at risk considering the EU is the nation’s strongest trading partner. With most of its members a part of the Eurozone, America’s businesses in the region would lose confidence with the dwindling euro and make the US dollar expensive for the European markets. Reduced exports for the US would also happen considering that the European countries would most likely export their items to the US, fostering more issues for the US recession crisis. Many American investors would also likely to pull out of the Eurozone nations and locate new regions to invest upon without the losses of a single currency. The US banks aligned with the European financial institutions would also feel the brunt of the Greek crisis considering that it would reveal the US’ transactions with the region. US policymakers also stressed that the country would most likely experience further debt considering the IMF’s involvement with the bailout funding .
In response to the possible implications it would have with the EMU, there were already proposals in May 2010 from the International Monetary Fund and the EU to create a bailout plan for Greece amounting to €110 bn bonds, allowing Greece to continue and recover from their debt. Both the IMF and the EU would be sharing the amount of the allowable bailout funds for Greece, with the IMF taking over 3/11ths of the whole funds while the EU will support the other half. Under the bailout plan, Greece would have to restructure its economic policies and return in a competitive status that would allow it to compete with the Eurozone and the globe. The government is also ordered under the bailout funding to improve its policies regarding tax management and other political and social issues affected by the crisis such as the labor and health sector. Aside from the bailout proposals, there have also been talks to remove the country from the EMU despite the losses now experienced by France and Germany, two of the Eurozone’s largest economies . In their end, France proposed a debt restructuring scheme to aid Greece in paying their debts with the help of the private sector. In the case of Germany, they pushed for the bailout funds as it would entice budget discipline in nations such as Greece and no longer involve Germany and the other EU members. A proposal for a financial-transaction tax was also proposed by Germany as a solution to the growing Greek issue, especially pertaining to the government bonds .
With the debates regarding the Greek debt crisis ensuing despite the bailout funds sent to the region, calls for a permanent solution have already flocked the airwaves especially from the IMF. In her November 2012 statement, IMF’S managing director Christine Lagarde had expressed that the policy that should be given to the Greek government to ensure total recovery would need to involve a program that is solid and sustainable, and at the same time, maintain the integrity of the aid coming from the IMF to aid the region. Another recommendation filed by the IMF to the Eurozone countries is that they should agree to an interest rate cut on the current debt of Greece, some even remove the interest entirely. It was also proposed by some to aid the crisis is to combine all interest rates with a longer payment terms that could sustain the crisis until the debt maturation in 2021-22. The EU is still maintaining talks throughout the Eurozone countries in sustaining the bailout and at the same time, discuss whether or not they would allow Greece to exit the Euro entirely .
As the tensions and debt continue to escalate throughout Greece and the rest of the globe, the big question remains on whether or not the Greeks should be removed out of the Eurozone system. Many analysts had already stated that the Euro would not find recovery easily unless the Greek issue is either resolved or removed entirely from the EMU. In a statement from Alexander Dobrindt, general secretary of the Christian Social Union, it is imperative that Europe already work on an exit plan for Greece, stating that “The greatest risk for the Euro is still Greece” . Unless there is an active movement within the Greek government to address the concerns the Eurozone countries have on its economy and government and pay its debts accordingly, removing the country from the Euro is the only sure way to recover for the remaining Eurozone countries. Unless a strong plan is devised to retain and aid Greece and the ailing nations entirely, the crisis would continue further for the region and the world.
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