Question

In: Economics

The Greece Economy and the Euro: - what was the situation before (The Dracma, what were...

The Greece Economy and the Euro:

- what was the situation before (The Dracma, what were the prevailing rates, convergence to Maastrich agreement, fraud?)

- has it been good or bad to their Economy? Up to the financial crisis? then what?

Solutions

Expert Solution

  • Before entering the Eurozone in 2001, the Greece's faced many deep rooted problems. It had witnessed soaring inflation rates, high fiscal and trade deficits, low growth rates, and exchange rate crises resultant of series expansionary fiscal and monetary policies which were aimed to strength en the economy.
  • Addmission of Greece to the  European Monetary Union created a hope that it would dampen inflation, reduce nominal interest rates, encourage private investment, and spur economic growth. What was envisioned came true, however, Greece failed to comply with the 1992 Maastricht Treaty guidelines to make structural adjustments in the economy.
  • The false pretenses by the government of being in line with the treaty whereas not solving the deep rooted problems like the systematic tax evasion not remedied in time. Worsening Greece’s trade balance and increased current account deficit continuously ignored by the government added more to risks to the fragile economy.
  • Finally, in 2007 the economy saw a final blow which exposed its financial strife leading government to seek bailout funding.
  • The unemployment reached as high as 25.4% (2012) with a situation like humanitarian crisis with increased homelessness.

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