Should Countries Like Greece Bear the Burden of Repairing the Eurozone Economy - Essay Example

Should Countries Like Greece Bear the Burden of Repairing the Eurozone Economy? Contents Introduction 3 Discussion 3 Conclusion 7 References 8 Introduction The Eurozone is an independent monetary and economic union of countries which includes 16 main member nations “Greece, Austria, Belgium, Slovakia, Luxembourg, Spain, Ireland”, The Netherlands, Italy, Finland, Cyprus, France, Slovenia, Malta, Portugal and Germany. In the present situation, the Eurozone is facing severe threats of dissolution and economic breakdown due to the long term and profound economic and financial crisis conditions experienced by the nations of Eurozone. The Eurozone crisis has been one of the most intense sovereign debt turbulence in the history of global economy. As such, Greece is often blamed to be the sole entity which has put the Eurozone countries amidst this high level of threatening economic crises. This report is prepared with the aim of analysing the view as to whether Greece should take the major parts of the burden and responsibility to repair and recover the crashing economy of the Eurozone because the economic mechanisms and processes followed by the nation have been the primary drivers of the extreme sovereign debt crisis in all the Eurozone countries. The view is analysed from different dimensions by evaluating the role of Greece in the crisis, understanding how Greece can contribute to the recovery of the economy and also assessing the role that can be taken up by the other members of the Eurozone to revive and grow the Eurozone economy. Discussion In order to present any recommendation on whether Greece should be the primary economy to bear the main burdens of recovering the economy of the Eurozone, the basic features of the Eurozone macro-economic policies and the euro crisis should be discussed. Also, the underlying dynamics and mechanisms followed in the Eurozone in response to the deficit and debt issues and other economic problems should also be delved into. The starting of the Eurozone debt crisis was marked in the last part of 2009 when the Greek debt crisis erupted. The main issues with the economy of Greece were identified after the national election in which the newly elected Greek Government revealed that there had been many de facto lies presented to the public regarding the extent of fiscal and monetary deficit in the economy. The revised fiscal deficit of Greece in 2009 showed that the country had 7% more fiscal deficit than the value presented before, which resulted in the global investor groups removing their money from the Greek sovereign bonds1. These conditions ultimately made it necessary for the government of Greece to access external funds for recovering its economy. The other 16 members of the Eurozone and the global authorities such as the International Monetary Fund (IMF) extend all kinds of possible help to revive the Greek economy since 2010. But again in mid-2011, the economy of the Eurozone started showing signs of collapse, when the contagions from the Greek debt crisis rapidly spread into all the other economies of the zone resulting in severe dysfunctional and stagnation conditions for the Eurozone economy2. The key issue identified in this respect was found to be the massive debt crisis faced by Greece, Portugal and Ireland which were not mitigated properly and with time increased in intensity and spread to the other economies of the zone. The Eurozone crisis initially started as a main public debt issue in Greece at the end of the year 2009. This contagion slowly spread into the other member countries of the Eurozone, thereby leading to the giant Eurozone sovereign debt crisis. The deepening recessions in Greece combined with the failure of all kinds of adjustment programs and policies employed in the country intensified the severity of the crisis. Two main developments in 2012 also played a major role in intensifying the Greek sovereign debt issue. These are the International Monetary Fund (IMF) refusing to provide any further financial assistance to the nation until and unless it revised the national financing systems and the high level of sovereign default noted in management of the government floated financial instruments in the capital markets of the Eurozone3. The origin of the economic crisis in Greece can be accredited to manifold factors including the high level of trade imbalances between Greece and Germany, he Great financial Crisis (GFC) of 208-2009, the insufficient and lacking construction of the economic landscape of the Eurozone, the distinct and flawed macro-economic policies employed in the zone member countries, the secret debts and fiscal deficits maintained by the previous Greek Government and the lack of effective contagion control ,mechanisms in the country4. The crash of the Greek economy has further added to the severity of the Eurozone crisis. The Greek contagion has been identified as one of the major reasons which has made the economy of the Eurozone more susceptible to dissolution. Since, Greece, a main member country of the Eurozone has been clearly identified as the major cause of the Eurozone crisis, therefore, a common view has been propagated in the global economic forums that Greece should take the primary responsibility of fixing up the debt issues and contagions that started from the nation and subsequently spread to the other Eurozone member countries and severely affected the whole Eurozone economy. As per the views of these economists, Greece should also play the most active role in fixing the distorted economic conditions of all the Eurozone member countries5. The story of the economic problems in Greece has been that of a major lack of economic management wherein though, the Greek government has made massive fiscal adjustments after the debt and deficit issues, yet since the starting of the debt crisis, the economy of the country has experienced a contraction of 15%. The recession level has depend over the period of 2009-2014 in which Greece has experienced high amounts of loss in tax revenues and investments in the government floated financial instruments like sovereign bonds and treasury bonds. As a result of this. The total fiscal deficit value of the country has continued to increase and the Gross Domestic Product (GDP) of the country has been shrinking at an alarming rate. This also led to the massive increase in the debt to GDP ratio in the economy. The worst part of the sovereign debt crisis in Greece is that the contagion went on to spread to other economies at a rapid and uncontrollable rate which made these countries suffer from the collapse of trust levels for the Eurozone countries, increasing incompetency in the management of the public sectors., major loopholes and inefficiencies noted in the fiscal and monetary policies implemented in these countries and a high level of fiscal austerity6. The economic and financial issues in Greece have been compounded by the lack of investor confidence and interest and the weak tax and financial management systems in the country. Though in the current situation, the economy of Greece can be non-arguably stated to be unsustainable, yet if the Greek government seeks to develop better political systems by forming a new government through the national elections, then the problems with the European Central Bank (ECB) and the International Monetary Fund (IMF) can be resolved to a great extent , This would help the county to access external help form these authorities so that the Greek economy as well as the other economies of the zone can be survived and recovered in a sustainable manner7. Conclusion Thus, the Greek economy can be undoubtedly blamed as the instigating force for the Eurozone crisis and as such it should play the most active role and take up the major responsibilities for recovering and reviving the Eurozone economy. However, it has been stated by many economist and scholars across the globe that Greece, with its already broken economic conditions cannot help to repair the Eurozone economy by itself. Definitely, the repair and recovery of the Eurozone economies should be incepted from thee economy of Greece because the major problem lies there in the current situation. However, tall the Eurozone member coun6reuis have to share the burden of helping the Eurozone recover from the debt and economic crises. A lack of suitable contagion control mechanism has always been a main problem with the way the macro-economic situations are managed in the Eurozone. The main problems lie in the standalone nature of the economic principles and mechanism and the distinct fiscal and monetary policies implemented by the governments of the Eurozone countries. References Bauby, P. & Varone, F. “Europeanization of the French electricity policy: four paradoxes”. Journal of European Public Policy, vol. 14, no. 7, 2007. pp. 1048-1060. Borio C. “Towards a macro prudential framework for financial supervision and regulation?” CES of Economic Studies, vol. 49, no. 2, 2003. pp. 181–216. Delbecque, B. “The ECB’s proportionate response to the Eurozone crisis”. http://www.voxeu.org/article/ecb-s-proportionateresponse-eurozone-crisis, 2012. (accessed 9th June 2015). International Monetary Fund. “Will it hurt? Macroeconomic Effects of Fiscal Consolidation”. World Economic Outlook, vol. 14, no. 2, 2010. p.184. International Monetary Fund. “Fiscal Monitor: Balancing Fiscal Policy Risks”. http://www.imf.org/external/pubs/ft/fm/2012/01/fmindex.htm, 2012. (accessed 9 June 2015). Issing, O. The Birth of the Euro, Cambridge, Cambridge University Press, 2008. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crises, 5th edition, London, Palgrave Macmillan. 2005. Read More