History Repeating Itself: From the Argentine Default to the Greek Tragedy - Essay Example

For Argentina to curb inflation agreed with the United States of America whereby it replaced its national currency with the United States dollar, and its monetary policy with the Federal Reserve policy (Alcidi, Giovannini & Gros 2). Greece, on the other hand, has done the same a decade later by joining the European monetary union giving up its currency and monetary sovereignty, in the effort to bring financial stability and growth in the country. This definitely was significant to the growth of the country and brought inflation under control for some time.

The stability couldn’t last long, and there was an increase in fiscal debts build-up, and external imbalances from the corruption and uncontrolled public expenditure. In Argentina, the governments set up laws, which were approved in a sequence. The laws were aimed at restoring the market confidence and control the deficit to balance the budget, but the situation was going from bad to worse. The last solution was thought to be zero deficit law but did not work as well ((Alcidi, Giovannini & Gros 3).

The Greek used the same strategy as well whereby the government endorsed consolidation plans, which to no improvement led to the need of an emergency plan. However, their plans were asset sale plans while Argentina had no assets to sell. From the worsening situation of the economy in Argentina, IMF, and other external aids came in to salvage the situation with huge financial support. They also came together to bring availability of Argentina to the capital markets, unlike Greece, which had been in the capital market through the European Monetary Union.

This exposed it to other financial lenders, which brought more stability compared to Argentina, although its situation was as well deteriorating and the European Union had to develop an emergency plan. Argentina was incapable of tackling the debt issue. Hence, the government announced a debt swap whereby they exchanged short-term loans for new debts with longer maturities, which brought some step up. However, it was not a solution to the default. Greece has also forwarded a self-restricting proposal for their short term debts.

In Argentina the state of affairs was irreparable and could not be averted any longer. As a result, the population withdrew their savings and was resistant to new adjustments. All the efforts to curb the inflation did not provide a long term solution and the situation went out of hand. At this point, the president issued controls on the foreign exchange and banking transactions halt the bank run. Greece as a member of the European monetary union has been in a much better position in terms of banking systems and financing.

Therefore, it emerges that compared to Argentina, the volatility in Greece is lower (Alcidi, Giovannini & Gros 5). This article has reiterated on the striking similarities in the nature of crisis and the measures employed to curb the crisis. Greece could end like Argentina by following its footsteps. THIS TIME IS DIFFERENT This is a synopsis of the article ‘This Time is Different: A Panoramic View of Eight Centuries of Financial Crises’ by Reinhart & Rogoff. This article gives a breakdown of historic financial crisis over centuries.

Databases are gleaned from historical databases, which give broad insights.. This database has dates and the coverage of the crisis