VANDERBILT POLITICAL REVIEW
INTERNATIONAL
11.10.2009
The begining of the end
T
he Greek Crisis is a story of financial
irresponsibility
and
overconfidence of not only the
Greeks, but more importantly the international bond market and the IMF.
This summer has been riddled by news
of Greece’s inability to repay its loan
to the International Monetary Fund
(IMF). Yet, in order to understand the
full story of the Greek crisis, we need to
look much farther back than the country’s current lack of capital. Some may
argue that Greece’s crisis started as
early as 1999, when it joined the Eurozone with a subpar economic structure and comparatively lower growth
prospects than other EU members.
In 1999, the Euro was phased in as a
common currency to bolster the economic viability of European nations by minimizing trade costs within the region and
increasing total trade. Yet, some countries, like Germany, were more produc-
by SYDNEY BUB ‘18
tive than others and were dominated by
industries that benefitted from economic
trends. Within the Eurozone, Greece was
less competitive and possessed less profitable export options and materials, ultimately causing the nation to have a consistent trade deficit and high federal debt.
Although Greece’s trade deficit
and structural economic weaknesses
undoubtedly played a role in the current crisis, going as far back as 1999
is a bit extreme in terms of assigning direct blame. However, November 10, 2009 stands out as a poignant
day in Greece’s financial tumble.
Much of the Eurozone has been riddled with financial turmoil since 2009,
with five sovereign debt crises occurring
since the start of the Great Recession. In
2009, Greece announced that its budget
deficit would more than quadruple the
EU’s three percent limit and would be an
unacceptable 12.9 percent of GDP, mak-
ing it the first Eurozone nation to have
a sovereign debt crisis. This announcement highlighted many structural flaws
and weaknesses in the Greece economy
and spurred international credit rating
agencies, like Moody’s and Standard
and Poor’s, to drop Greece’s credit ratings, discouraging current and potential
investors. Fears about Greece’s economy
were exacerbated by the discovery that
Greece’s government had misreported
deficits and debt levels. Greece’s high
budget deficit, combined with its lack
of credibility internationally made it impossible for Greece to borrow more and
finance its deficits and meet its obligations. Had Greece not been a member of
the Eurozone, with centralized and coordinated monetary policy, it could have
been able to strategically depreciate its
currency to pay off debt and increase
investment. Due to its Euro membership, Greece instead cut wages to remain