Greece’s Financial Crisis and Its Effect on the Euro in 2010

There’s been a lot of articles and news stories about the financial crisis in Greece and how it is affecting the value of the Euro in relation to other currencies. There’s no doubt that the Euro is going through a bad time in these opening months of 2010 and the crisis in Greece is certainly one of the reasons why it’s going through such a hard time.

The problem is that Greece has a huge deficit, much higher than the one agreed upon between the nations of the European Union (16 of which make up the Eurozone). In fact, this deficit has become so huge that there is a genuine fear that Greece will not be able to pay back its loans and may default on them. Naturally, this casts a dark shadow over the Euro that a nation that’s using it is in such bad straits.

There is an expectation that the stronger Euro nations like Germany will rush to Greece’s aid and bail this ailing economy out. It seems that German leaders are ready for that, but public opinion is the stronger European nations is dead set against it. The population of Germany which is the Euro’s strongest economy is widely opposed to helping the Greeks because they believe that they need to bear responsibility for their fiscal mismanagement. There is certainly some truth to that.

There’s a dual problem: if you don’t help Greece it may default on its loans. If you do, you need to pump the market with a lot of Euros, cutting down its value. Naturally, neither is a good option but bad ones are all that remain.

What worries Germany is that Greece is not alone in its problems. Italy, Ireland, Portugal, and Spain are all showing signs of serious financial weakness. Spain has an unemployment rate that’s bordering on 20%. There is concern that if you bail Greece out, you may need to bail these countries out as well. This is something that frightens the entire market since this will require a major financial commitment that may cause the stronger Euro economies to suffer as well.

As Greece seems incapable of passing tough internal resolutions with violent protest and growing public outcry against the recent tightening measures of the Greek economy, the Euro is suffering from the uncertainty. Only time will tell how long this weakness will last. It certainly seems that the European economy is headed for some major challenges still.

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John Drummond works from home. He writes often on business, trading, and finances.

Eight Positive Steps to Cure the Economic Crisis in Greece

The current state of Greece’s economy is shaking stock markets, and creating more worry about the value of the Euro. However there are certain steps Greece could take to relieve the economic pressure it faces, and built a more sustainable economy.

1. Leave the Eurozone

When times were good for Greece, the Euro was an ideal currency for the country. But it also tied Greece to strict monetary policies that may stop the country from initiating the reforms it now needs.

Reverting back to the Drachma, would relieve Greece from the pressures of Brussels, and allow the nation to collect the vast amount of “black” money currently hidden from the taxman to initiate a recovery.

2. An Anti-Corruption Drive

Greece is not the only country in the Eurozone which suffers from high levels of corruption, and nepotism. But a corruption drive could please investors, and allow Greece to clean-up its current status as one of the worse countries in Europe to do business. Ensure Government servants or their spouses cannot run businesses, or politicians receive funding from large business groups.

3. A Sunshine Policy on Tax

Greeks tend to hoard “Black” money, and avoid taxes. Offering a sunshine policy were offenders could repay some of the tax without prosecution, and a possible “break” when the economy turns around. This could entice wealthier Greeks to put something back, rather then hoard, when things are going bad.

4. Encourage Free Enterprise

By allowing Free enterprise to flow into the economy, by giving “tax holidays” to new business start-ups, and other incentives. The unemployed could create their own work, and relieve the state from the pressures of paying social security.

5. Austerity Programs

Start further austerity programs from the top down, shifting the responsibility to those who ruined the country, rather then those who were honest enough to pay taxes. Politicians could do away with some of the perks of power like extensive pension plans, and initiate sharp pay cuts to members of the Greek parliament.

6. Renegotiate Loans

Greece currently has one of the highest debt levels in the World, even surpassing Italy, and the United States. By renegotiating its debts based on a financial plan to encourage investment, and a corruption eradication policy. This could give breathing space to implementing a more sustainable economy.

7. Implement Work-Share Programs

Rather than let the unemployed sit around, implement community work-share programs, were the unemployed can help the local community in exchange for welfare, and valuable training.

8. “Open Door” Investment

After local businesses and the Owners pay the tax they have avoided. Offer an open door investment policy, were they can continue business with “tax breaks,” and are awarded for investing funds into the economy.

International investors freed from the restraints of the European Union, could invest in “micro industries,” and “green-tech” industries, building a more energy efficient society, which could export to the nearby European Union.

Greece as a nation faces a very hard short-term future, and has to change. But if these strategies are implemented, Greece could have a more sustainable and vibrant economy, that benefits all, instead of the few.

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Government Debt Causes Financial Crisis in Greece

Greece’s economy is currently very weak and is threatened by a possible bankruptcy due to high amounts of debt. Because Greece is within the Eurozone, Europe has come together in effort to save Greece and, in essence, to save the Euro. In order to prevent a domino effect throughout the Eurozone, EU must take immediate steps to save Greece. A collapse of Athens could possibly mean a second global financial and economic meltdown. This article outlines my research into Greece’s debt crisis, its causes, and two possible solutions to the problem.

Unstructured Government Problem

Through my research, I found that Greece has allowed corruption and tax evasion to thrive in the country. This corruption has gradually taken over the country and the government seems to no longer have control of its people and taxes. According to calculations of the European Union, Greece loses approximately 30 percent of its income taxes due to tax evaders. Through years of such corruption, Greece has lost control of its money and has allowed the debt to pile up. Now that Greece is in trouble — and within the Eurozone — Europe has to pay to keep Athens alive. However, the real corruption began before Greece was ever allowed to be part of the Eurozone. Greece should have never been allowed to enter the Eurozone. In 2001, Greece claims to have dramatically cut its inflation and interest rates. Greece also claimed to have lowered its deficit below 3 percent which meets the requirements to join the Eurozone. However, after taking a closer look into Greece’s budget figures, it becomes evident that the country has not actually met the conditions to join the Eurozone. The Greek government admits that its deficit has never been below 3 percent since 1999.

Bail-Out Problem

In an effort to save Greece and the Euro, international authorities have supplied immense support. In May 2010, a 110-billion Euro bailout was granted to Greece. However, the funds were not enough. Recently, the European Union has suggested a second bailout plan for 120 billion Euros in an effort to save Greece. Although the second bailout plan may help Greece for the time being, it is a temporary solution that will only delay the problem. The European Union reckons that by 2014 Greece will be unable to fund itself once again. This concludes that the current funds of 110 billion Euros will not be enough.

Due to the tremendous amounts of funds sent to Greece in the past two years, taxpayers in Europe are not unaffected by this crisis. Calculations have shown that each household in the Eurozone underwrites 535 Euros in Greek debt however, by 2014, following the second bailout, the numbers will increase to 1,450 Euro per household.

Solutions

A direct answer to this diverse problem is not possible; however, one solution could consist of keeping Greece in the Eurozone and regulating the government more closely to hinder corruption in the country. However, it would also cost Europe millions to run the country in a stricter manner. This solution would still include the help packages, and would also require the help from surrounding countries to keep a closer watch on the tax evaders to limit their corruption in the system. This solution contains risks as it is not guaranteed to work, and the possibility of a bankruptcy still remains.

The second and more effective solution would be for Greece to exit the Eurozone. Greece has considered this solution, but many experts have warned of the many consequences. Experts warned that if Greece dropped the Euro, the new Greek domestic currency will lose as much as 50 percent of its value against the Euro. If Greece were to exit the Eurozone, it could lead to the country’s bankruptcy. However, if Greece stays within the Eurozone, there is still no guarantee that a bankruptcy can be avoided. Therefore, if Greece exits the Eurozone, the Euro will not be jeopardized; but if Greece stays within the Eurozone, its bankruptcy may cause a total financial crash within the Eurozone and possibly precipitate a worldwide financial crisis.

Summary

Due to Greece’s unstructured government and the associated corruption and tax evasion, debt has risen to unimaginable levels. Pressure is now on Europe to save Greece and the highly valued Euro currency. In order to prevent a financial crisis in Europe, Greece’s government must either be closely regulated or Greece must exit from the Eurozone.

Greece’s exit from the Eurozone would lead to the relief of the many European countries within the zone. All in all, when considering that Greece used corrupt methods to enter into the Eurozone, financially stable countries within Europe should not be responsible for Greece’s financial debt. Therefore, I believe it would be in the best interest of the European financial market if Greece were to exit the Eurozone.

Written by: Jacqueline March

On the Financial Crisis of Greece by Lee Joo Hang @하나고등학교

Lee Joo Hang gives a speech on the financial crisis of Greece and explains the background for the problem in Mr. Lim’s class

A classic moment when England captain David Beckham scores with a sensational 30-yard free kick, three minutes into injury-time. Because Germany only drew with Finland, the goal means England automatically qualified for the2002 World Cup finals.