Question

When the euro was introduced in 1999, Greece was conspicuously absent from the list of the EU member countries adopting the common currency. The country was not ready. In a few short years, however, European leaders, probably motivated by their political agenda, allowed Greece to join the euro club in 2001 although it was not entirely clear if the country satisfied the entry conditions. In any case, joining the euro club allowed the Greek government, households, and firms to gain easy access to plentiful funds at historically low interest rates, ushering in a period of robust credit growth. For a while, Greeks enjoyed what seemed to be the fruits of becoming a full-fledged member of Europe. In December 2009, however, the new Greek government revealed that the government budget deficit would be 12.7 percent for 2009, not 3.7 percent as previously announced by the outgoing government, far exceeding the EU’s convergence guideline of keeping the budget deficit below 3.0 percent of the GDP. As the true picture of the government finance became known, the prices of Greek government bonds began to fall sharply, prompting panic selling among international investors, threatening the sovereign defaults. Several years into the crisis, the Greek government debt stands at around 180 percent of GDP and the jobless rate among youth is above 50 percent. The country’s GDP declined by about 25 percent. Severe austerity measures, such as sharply raised taxes and much reduced pension benefits, were imposed on Greece as conditions for the bail- outs arranged by the EU, IMF, and the European Central Bank. In addition, people were allowed to have only restricted access to their bank deposits, to prevent bank runs. Opin- ion polls indicate that the majority of people in Germany, the main creditor nation for Greece, prefer the Greek exit from the euro zone, popularly called Grexit, while some people in Greece are demanding Grexit themselves and restoration of the national cur- rency, the drachma.

Discuss the following points: 1. What were the socioeconomic issues that caused the economic crisis in Greece in 2010?

2. Through the 2010 crisis, what do you think were the costs and benefits of staying in the euro zone for Greece?

3. What would be the measures that need to be taken to keep Greece in the euro zone in the long run?

Answer 1

1. The economic crisis in greece is attributed to a multitude of reasons which built up over a period of time. Let's take a quick look at some of those:

• Lack of efficient pension system: Greece literally struggled to pay pensions. According to a 2012 report, Greece has utilized close to 17% of their GDP in paying pensioners, which is also the highest in the Eurozone. Despite these efforts, not all the pensioners are happy with the pension amount as cases have been reported stating 40% cuts in the pension amount. Thus this contributes to a crisis taking into consideration the elderly population.
• Lavish bonuses: Yeah, bonuses were granted if the employee just showed up on time. This practice obviously took a toll in the pension money being distributed.
• Early retirement: When this happens the a nation'e economy is already losing its manpower to regulate the same. On top of that, pensions have to be distributed as well even though it is less.
• Unemployment and work culture
• Tax evasion: The failure of Greece government in collecting taxes even from the rich has significantly contriibuted to their debts being at 177 perrcent its GDP, creating a massive economic crisis

2. This is quite an intuitive aspect. So, I recommend you look up to the link goven here:

https://en.wikipedia.org/wiki/Greek_withdrawal_from_the_eurozone#Immediate_economic_fallout_inside_Greece

3. Considering the reasons, the most pressing of them is the debt crisis. So in order to ensure that Greece stay in the Eurozone, a stern debt reformation is needed. Some reformations could be cutting of pensions, resurrecting efficient taxation system and a liberal labour market. Apart from this, there are lot of political schematics going behind.

Cheers!