Greece Crisis

Greece has been at the center of the euro crisis with large national debt and budget deficit since the global financial crisis of 2008. After adopting euro in 2001, along with other Eurozone countries, the confidence in Greece economy grew due to lower interest rate and low priced capital access.  The chart below (Figure 1.)

                               [pic 1]

                                                                          Figure 1.

demonstrates Greece GDP per capita growth before 2008 and decline after 2008 with comparison of Germany.  One of the reasons for increased GDP per capita for Greece was increased government spending.  When Greece had an opportunity to borrow money at lower interest rate, the Greek government took advantage of it as paying for government spending.  Unfortunately, Greece did not use borrowed funds effectively as supporting productive investment, which can generate future economy growth. Compared with Germany’s economy, which is the largest in Europe, country with small economy like Greece was not able to cope with issues raised from the common currency in Eurozone.  Although the euro flexible against most other currencies in the world, it is definite that 19 eurozone countries have been using a common currency and monetary policy (Appleyard et al., 2014). German dominates European Central Bank and brings monetary policy that is about right for Germany, but not Greece. Technically, the European Central Bank aims to maintain stability of the euro and the Eurozone economies to serve well for the big economies.  Compared with Greece national debt to GDP and budget deficit to GDP ratio, Germany ratios are looked stable (Figure 2; Figure 3).

                         [pic 2]

                                                                         Figure 2

Common currency and single monetary policy brought disadvantage for Greek economy as limiting its economic recovery policy. If Greece had its own currency and monetary policy, it could have devalues its currency as increasing money supply. Devalued currency would have helped Greek producers became more attractive and stimulated Greek exports.  Due inability of implementing its own monetary policy to expand economy, Greece took expansionary fiscal policy as increasing government spending and offsetting tax revenue, which was the biggest cause for Greece’s debt crisis. In order to pay the government spending, Greece borrowed money. (Figure 2; Figure 3)

                         [pic 3]

                                                                        Figure 3.