1. The Case Study was written in spring of 2011. Research what has happened in Greece since the case study was written. How is Greece doing economically? Did they bounce back after the 2010 bailout?
The global recession and fraudulent steps Greece took to enter the Eurozone took a catastrophic toll upon the country and its economy. In April of 2009, the European Union ordered Greece to reduce their budget deficits, along with France, Spain, and the Irish Republic in hopes to prevent a further trickle effect upon the other countries of the Eurozone (http://www.bbc.co.uk/news/business-13856580). However, Greece was unable to gain control of the piling debt and admittedly announced later that same year in December of 2009 that the country’s debt had accumulated to an astronomical 300 billion Euros but, remained adamant that the country would not default on its debts. Greek banks and government debt began to receive less than favorable ratings and reviews of future prognosis of the country’s ability to recover from ratings agencies. This consequently had effects upon the stock market within the European Union, because when rising bond yields reveal falling prices, investors are quick to pull out their investments before it is suspected to drop even more drastically.
This ultimately hurts all participating countries within the Eurozone since they all use the same form of currency and creates an individual and slow moving trickle effect. Furthermore, it is in the best interest of the other stronger and more successful countries within the Eurozone to help the weaker and struggling countries so that the Euro remains intact within all the participating countries of the Eurozone and the stock market does not suffer cataclysmic effects. Subsequently, this is why countries of the Eurozone (mostly Germany and France) reluctantly helped with the International Monetary Fund’s efforts to bail out Greece in a collaborative bailout package to rescue Greece from defaulting on loans in the amount of 110 billion Euros in May of 2010 (http://www.bbc.co.uk/news/business-13856580). However, the Greek debt crisis had not seemed to be getting any better and rapidly gained notoriety
and mass worldwide media coverage regarding the country’s mismanagement of their financials and had left citizens of the world questioning if Greece will be forced out of the Eurozone. Unfortunately, Greece had fallen into an economic downturn that just seemed to spiral out of control and into a vicious circle that left the country vulnerable to being removed from the Eurozone for being in default of terms that were set up by the Eurozone, Economic and Monetary Union, and the International Monetary Fund. In order to remain within the Eurozone, Greece was ordered by the European Union to implement even more stern and vigilant austerity measures in July of 2011; in which they were granted a loan for 12 billion Euros to help Eurozone (http://www.bbc.co.uk/news/business-13856580). In addition, Greece’s private sector creditors agreed to write off more than half of what was owed to them from the Greek government.
The private sector creditors also reached out to help with a long-term recovery plan by replacing Greece’s current loans at a lower interest rate than what was established before to help curb the amount of stressful debt faced upon Greece. These efforts helped to eliminate an additional 40 billion Euros off Greece’s stagnant amount of debt (http://www.bbc.co.uk/news/business-13798000). Less than a year later, it was more than evident that previous loans and debt write-offs were not enough to help the failing economy of Greece, and that it was trapped in a debt slump, along with being in desperate need of another bailout. On March 13, 2012 a second large emergency bailout was granted to Greece by the Eurozone, Economic and Monetary Union, and the International Monetary Fund in the amount of 130 billion Euros to assist in the efforts of calming hysteria of European citizens and over-publicized media, plus help to prevent another mass trickle effect upon the Eurozone (http://www.bbc.co.uk/news/business-13856580). In return, Greece was forced once again to impose even more obligatory and stringent austerity measures than what was previously suggested and then mandated before by overseeing organizations.
Greece’s Current Economic State: The Greek Austerity Bill that was passed in conjunction with the second bailout package Greece received had mixed reviews from citizens and was the cause of massive violent riots throughout Greece. These riots were similar to other European country’s riots of rejection against national austerity measures that were ordered from the overseeing organizations of the Eurozone. Citizens from other countries had resentment towards Greece and its’ previously failing economy that required other Eurozone nations to pull together and help fund it from defaulting. It had seemed Greece was stuck on a stubborn and unprogressive path to an encouraged recovery. Even more nerve-wracking was that there was no guarantee Greece would pull through. Nonetheless, Greece has made unexpected, yet celebrated strides to a restored level of improvement after dealing with a long six years of a dooming recession. Greece has surpassed its established goals for 2013 and is ahead of projected fiscal recovery objectives so far this early in 2014.
Even more impressing is that ten year bonds that had a concerning yield of over 40% just a few years ago, now are just below 8%. It is predicted that this next year will be the first year since the global recession struck, that Greece will see an actual growth in GDP. It is exciting to see Greece turn a new corner and possibly progress over time into the stable and flourishing economy it once was, as well as it is currently working towards and aspires to be. Political unrest and economic disparity still exists within Greece; the peril of Greek extremists of both neo-Nazi and neo-Stalinist varieties are a daunting worry for Eurozone and Greek politicians alike whose interest is moving Greece forward and out of unemployment disproportion, and into a prosperous and re-established economy and nation. It is best to say, Greece is not quite where it needs to be but, is fortunate to not be where it once was and is showing the world its recovering potential.
2. What are the benefits and costs of using a common currency for Greece, Germany, and the EU?
Europe consists of many countries that are not vast in size individually but, collectively make up a continent of numerous countries that are relatively close to one another. Most citizens within these countries are very culturally diverse; they are affluent in multiple languages in addition to extensive traveling throughout the countries of Europe that are in such close proximity of each other. Business and monetary transactions were complicated by each country’s form of currency that had to be converted based upon the exchange rate, and transfer fees would apply in some cases. These complications led to the formation of the EU (European Union); in which voluntary countries of Europe, who were stable enough as well as able to prove their budget was 3% of their GDP, were able to join and conveniently able to convert their previous form of currency to the collectively accepted and exchanged Euro amongst the countries of Europe that volunteered and were accepted into the EU. Eleven European countries were the first initial countries to convert to the unified currency and were required to prove their budget deficits, inflation, interest rates, economic stability, as well as meet other monetary standards established by the Economic and Monetary Union (EMU).
It was not until 2002 that Euro bank notes and coins were widely distributed and used. Before that point, from 1999 until 2002. As time progressed, seventeen European countries adopted the Euro as their form of currency and they are collectively referred to as the Eurozone. The seventeen countries include; France, Greece, Italy, Germany, Spain, Portugal, Ireland, Netherlands, Austria, Belgium, Cyprus, Estonia, Malta, Luxembourg, Slovenia, Finland, Slovakia.
3. Germany is one of the strongest economies in the EU currently. How do they benefit from being part of the EU? What are the disadvantages of being part of the EU? Do you think their economy would be stronger if they were not part of the EU? Germany benefits from being part of European Union because it is one of the strongest economies within the Eurozone. They, along with France, are the main powerhouses of control of the Eurozone. It is also the same reason in which it is an extreme disadvantage as well. Germany, is one of the wealthier countries of the north that are more strict and tightly budgeted, while the southern countries of the EU are more relaxed and spend freely. Being a financially responsible country that can manage a profitable budget, Germany is subjected to monetary restrictions and penalties due to the irresponsible actions of the southern countries of the EU due to their shared membership of the Eurozone. However, it is in the best interest of the Eurozone as a whole for the more stable countries, like Germany and France, to contribute and help their fellow members of the European Union and Eurozone until their economies become stabilized.
Most importantly, the Euro would remain intact within all the participating countries of the Eurozone and the stock market would be spared from suffering cataclysmic effects. Subsequently, this is why countries of the Eurozone (mostly Germany and France) reluctantly helped with the International Monetary Fund’s efforts to bail out Greece in a collaborative bailout package to rescue Greece from defaulting on loans in the amount of 110 billion Euros in May of 2010 (http://www.bbc.co.uk/news/business-13856580). These collective efforts were not only put forth by the wealthier and more responsible countries, such as Germany and France, but the EMU (Economic and Monetary Union) and the IMF (International Monetary Fund) to help float and support (“bail-out”) Greece, as well as other Eurozone countries in the near future that would be in need of financial help, during their time of economic crisis and deficits that were caused by negligent overspending and budgeting. I do not think that Germany would be stronger as a country economically, or a trading partner if they were not part of the European Union. Since the global recession took place and countries like Germany and France, along with the IMF, and EMU had to collectively ban together financially to bail out Greece as well as other countries that faced devastating budget deficits, German citizens/protestors as well as economists have rallied for dismissal of Germany to return to the Deutsch Mark to become solely independent, or for Greece and other financially dependent countries.
This may seem like the easiest and quickest of fixes. Although, the short-term effect of the negative should be considered as a sure-bet favor, more than a sacrifice, when Germany considers their assistance in the bailouts of fellow Eurozone members. Considering the future is far from precisely predictable; Germans should look at their assistance to their fellow Eurozone and European Union members as an investment as possible future assistance if roles should change over future decades, or centuries. In addition, as much as Germany and other wealthier countries would prefer the weaker countries to be dismissed from the EU as an easier option; it would be more detrimental to the fiscal monetary union, the Eurozone, and the established Euro to just simply dismiss one or a few countries that did not budget their spending correctly. As a result, Greece could return to the previous form of currency known as the drachma, which would be highly depreciated because of their deficit and overspending; however, would be beneficial to their exporting business because it would be drastically cheaper for other countries to buy their goods (Peng, Mike W. “Capitalizing on Global & Regional Integration.” GLOBAL. 2nd ed., student ed. Mason, Ohio: South-Western, Cengage Learning, 2013. 124. Print).
Germany and France; the wealthier and stronger countries would be effected by the dismissal of the countries and abandoning of the EU as their currency would grow and strengthen and their export business would drop because it would cost so much to purchase their goods. Overall, it is beneficial to the value of the Euro, the Eurozone, and European Monetary Union that there are wealthy countries to help and assist the impoverished and weaker countries of the Eurozone.
4. For the €750 billion European Stability Mechanism, even Sweden and Poland (EU members that do not use the Euro) felt they had enough at stake to contribute. But Britain (another EU member that does not use the Euro) decided not to contribute any funds. As a British official, how do you defend this decision?
As a British official, I would defend this decision solely on the concern of acting upon, or in this case not acting upon, preventative measures to protect my country and my own homeland’s well-being. Substantial cause for trepidation on wanting to help gives reasoning for the decision; considering the documented spiral of deceit on Greece’s behalf from taking fraudulent steps to enter the Eurozone, and their inability to gain control of their piling debt after being ordered by the European Union to reduce their budget deficit . Rising bond yields and the actions of investors pulling out investments proved that Greece and their possibility of a healthy recovery was doubtful. It would be safe to assume Greece was beyond a stable and predictable forecast for a rapid
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