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The Greek Tragedy

The Greek Tragedy
The Euro Spells Disaster for Greece.

The Euro is a currency that’s commonly used by the institutions and countries of the
European Union and it’s the actual currency of the Eurozone which is made up from 17 of the 28
member countries of the European Union. These countries are Austria, France, Belgium, Spain,
Ireland, Estonia, Slovakia, Portugal, Greece, Italy, Cyprus, Luxembourg, Malta, Netherlands,
Finland, Slovenia and Germany. Since its inception, the euro has been one of the most widely
held reserve currency internationally just behind the US dollar. The world share of the Euro as
one of the reserve currencies internationally has increased from 18% in the year 1999 to 27% in

  1. During the same period, the US dollar fell from a high of 71% to 64% while the Japanese
    yen also dropped from 6.4% to 3.3%. The Euro inherited the structures and status of the German
    Deutsche Mark. The Euro currently is second after the dollar in terms of importance as
    international reserve currency.
    The major benefit of adopting the Euro for Germany and Greece was to remove the extra
    cost of obtaining foreign currency or exchanging currency i.e. allowing traders, businesses and
    individuals to engage in previously non-profitable trades. Banks also treat member states
    transactions as domestic transactions for all electronic payments i.e. credit cards, Automated
    Teller machines withdrawals and debit cards among other transactions.

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The introduction of the Euro in the Economies of Germany and Greece was expected to
increase trade, investments and also control inflation. While Foreign Direct investments have
substantially increased i.e. by almost 22% there has been no significant improvement in terms of
trade especially as concerns Greece as Germany has benefited slightly more than other Eurozone
The cost of Euro to the Greece economy is actually detrimental. During inflation, Greece cannot
control or adjust the monetary policy in its own country or take any measures like devaluing its
currency as the euro is not its own currency. For example, the Greek government cannot print
extra money to pay its debts, since it cannot control the printing processes. The power to devalue
the euro to make foreign debts cheaper or print more currency belongs to the European Central
Bank and not Greece. Greece accounts for only 2% of the total economy of the Eurozone.
Initially, the European central Bank was only concerned with well established countries with
strong economies such as Germany and paid relatively low attention to countries with weak
economies like Greece. The Greek economy was becoming less productive and its debt
continued to grow at a rate that was even faster than its economic growth.
The Greek government decided to introduce economic austerity programs in a bid to
control its rising debts by cutting down its expenditure and introducing more taxes. The
government sopped hiring new employees and instead it even reduced the retirement age in order
to cut down its spending. These measures worsen the economic condition as it led to more
unemployment which reduced further the economic activity and the economy became even
weaker. Some countries like Ireland and Portugal in the Eurozone were not spared either as they
were also affected by the single currency just like Greece. But Germany on the other hand
continued to grow economically. www.indiana.edu/eucenter

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The austerity measures introduced by the Greek government and which were also
recommended during the bail outs affected only the people inside the country and also the traders
within the country. The measures had no effect on the exporters as the Euro was not affected at
all. The Greek firm that exports olive oil enjoyed the stable market in the Eurozone where else at
home it could get cheap labor as unemployment was so high in Greece as a result of the
government’s austerity measures of cutting down its spending habits. The Greek firm made more
profits as it could employ more people cheaply at home and charge more in the Eurozone.
Britain has its own currency i.e. the British sterling Pound, it has no connection what so
ever with the Euro and whatever can affect it (Euro), even if the rate of the Euro is eroded it will
not be affected if anything it will just make the sterling pound much stronger. Contributing to the
Euros 750 billion European Stability Mechanism would be equivalent to assisting its main
competitor. The main reason why the UK refused to dissolve its currency in favor of the Euro
was because its currency, the sterling pound, was already in use globally in international trade
and finance which greatly benefitted the British government. www.indiana.edu/eucenter
Greece joined the Eurozone in 2001 which was a wise decision then considering the huge
market available within the union. The Greek economy was relied mostly on the tourism sector
and the European union provided a ready market for the Greece government. Germany, France
and other European countries found it easier to visit the country as the currency used was the
Euro besides there were other advantages that the Eurozone offered to its member states. The
Greek economy prospered then (2000s). Although it was not clear then, but many sectors in the
Greece economy did not benefit from the Euro. Most of the European countries that used the
Euro had more productivity than Greece, for instance Germany, i.e. an average worker in
German produced more goods than his Greek counterpart. These resulted in Germany benefitting

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more from international trade than Greece and since its products are more than those of Greece it
could even reduce its cost to remain more competitive than Greece. The Euro seems to benefit
countries with large economies and the smaller ones like Greece and Portugal are at a great
disadvantage. (Baldwin and Wylosz, 2004)
In 2009 when the Greek economy could not support itself and was bailed out it actually signaled
the failure of the Euro to meet the economic demands of the Greek government. Despite the
bailout the Greek economy is still under performing and it would still be sometime before it
eventually improves or another alternative solution is found.

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Baldwin, R. and Wylosz, C. (2004) The Economics of European Integration. New York:
McGraw Hill.

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