Monday, April 8, 2013

Greece -- What's the next step?

Greece is in a pretty tight spot as of late. Its economy has shrunk over 25% in the last 5 years (http://www.bbc.co.uk/news/world-europe-20508071).The merger plans of Greek banks were just recently called off, resulting in a drop in shares of up to 30% nationwide. Greece's 4 main banks (National Bank of Greece, Eurobank, Alpha, and Piraeus), however, are to be recapitalized. Creditors such as the EU and the IMF called off the merger, as they were worried that a NBG-Eurobank combination would control about 40% of the market and would be hard to recapitalize (http://www.bbc.co.uk/news/business-22061879).

One option for Greece is to hope for its creditors to follow through with a 2.8 Billion Euro loan, about which the Greek Finance Minister is optimistic. 2.8b isn't all that much, when compared to the 350b+ Greece has already borrowed.

Another, more drastic option is for Greece to leave the Eurozone. Of course, this would have a series of negative effects. One would be that Greece would be forced to default on over 350b Euros in loans (as of July 2012. This number has, since then, increased.) from various lenders. Greek citizens would likely have their savings frozen, and businesses would go bankrupt. Tourism, a leading source of income for the state, would be stunted by potential political unrest. Banks would go under, and businesses would not be able to borrow money to invest or to import goods. Greece leaving the Eurozone may also deter investors from trusting the Euro, leading to a decrease in the value of the single currency and a potential recession for all of the Eurozone (http://www.bbc.co.uk/news/business-18074674).

So what should Greece do? After a while, the state may be able to benefit from having a different currency and may get back on its feet, but that wouldn't be for years to come.

4 comments:

  1. In the case of Greece, it is not just up to them whether or not they stay in the Euro. Ultimately, yes it is, but we must also look at the countries that act as creditors for Greece. It is in Germany's interest especially to get Greece back up on its feet. Should Greece leave the Eurozone and default on its loans, Germany will not be paid back and will be severely damaged. As such, the other countries in the Eurozone must step up and take on the burden of Greece unless they want to lose out on their loans.

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  2. Agreeing with Alexa, other members of the EU should step up and help Greece out. The country has already taken out loans from several countries and if they were to default on these loans by leaving the EU it would have severe effects on the whole EU. The states would not benefit from going back to the Drachma and should stick with the EU and hope that the other countries will help them out.

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  3. Similarly to both comments, it is best for the EU nations to help Greece out in this time. Defaulting on loans will be a losing situation for all of the EU, and they are already facing a lot of economic problems. Leaving the EU is the worst decision that Greece could make right now.

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  4. Greece needs to get its act together and go through some major reforms. With over 350 Billion euros in loans to be paid back and another request for 2 billion more it is apparent that their economy needs to go through serious reform. Leaving the eurozone would be disastrous but it will not help them fix what is causing them to default. While an independent currency would allow the government to manipulate the market it would not allow them to fix the inefficiencies in their government and economy. Leaving the eurozone would also negatively effect the eurozone so it would not be a good idea and would make Greece an exile from credit and relations with countries in Europe which would not allow them to recover from leaving the union.

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