Case. The experience of Greece illustrates some of the challenges of the eurozone. As a result of the global financial crisis that began in 2007–2008, the eurozone entered its first official recession. The severity of this downturn came close to breaking up the eurozone as financially weak members such as Greece, Portugal, Cyprus, and Spain teetered on the verge of bankruptcy. In 2008, Greece was in deep recession, its economy was uncompetitive with northern eurozone members like Germany, and its debt was more than three times as large as previously estimated. With debt piling up, investors feared that Greece could not pay its international obligations. To shore up Greece’s financial position, other eurozone countries, in conjunction with the International Monetary Fund (IMF), agreed on a package that gave Greece 110 billion euros in loans. When this bailout was agreed to, it was feared that Greece's exit from the eurozone would cause so much panic in the markets that other vulnerable countries might also be pushed into default. Thus, keeping Greece in the eurozone was considered essential for the financial stability of the currency bloc. In return for the loans, the government of Greece reluctantly agreed to implement an austerity program intended to bring down its deficit. This resulted in budget cuts, a freeze on public sector wages, pension reforms, increased taxes, and efforts to rein in rampant tax evasion. However, the markets remained skeptical about the government’s ability to deliver, partly because the austerity program might crumble as social and political discontent increased. By 2015, it became apparent that the previous bailout wasn’t doing the trick as Greece’s economy continued to crumble. Its gross domestic product declined by a quarter over five years, unemployment was over 25 percent, and youth unemployment was over 50 percent. Partly to blame was the austerity program demanded by the creditors. Critics maintained that it attempted to reduce Greece’s budget deficit too fast, thus intensifying the country’s economic downturn. Question: Identify the stages of EU economic integration, and how Greece needs to escape its existing depression.
Case. The experience of Greece illustrates some of the challenges of the eurozone. As a result of the global financial crisis that began in 2007–2008, the eurozone entered its first official recession. The severity of this downturn came close to breaking up the eurozone as financially weak members such as Greece, Portugal, Cyprus, and Spain teetered on the verge of bankruptcy.
In 2008, Greece was in deep recession, its economy was uncompetitive with northern eurozone members like Germany, and its debt was more than three times as large as previously estimated. With debt piling up, investors feared that Greece could not pay its international obligations. To shore up Greece’s financial position, other eurozone countries, in conjunction with the International Monetary Fund (IMF), agreed on a package
that gave Greece 110 billion euros in loans. When this bailout was agreed to, it was feared that Greece's exit from the eurozone would cause so much panic in the markets that other vulnerable countries might also be pushed into default. Thus, keeping Greece in the eurozone was considered essential for the financial stability of the currency bloc. In return for the loans, the government of Greece reluctantly agreed to implement an austerity program intended to bring down its deficit. This resulted in budget cuts, a freeze on public sector wages, pension reforms, increased taxes, and efforts to rein in rampant tax evasion. However, the markets remained skeptical about the government’s ability to deliver, partly because the austerity program might crumble as social and political discontent increased.
By 2015, it became apparent that the previous bailout wasn’t doing the trick as Greece’s economy continued to crumble. Its gross domestic product declined by a quarter over five years,
Partly to blame was the austerity program demanded by the creditors. Critics maintained that it attempted to reduce Greece’s budget deficit too fast, thus intensifying the country’s economic downturn.
Question: Identify the stages of EU economic integration, and how Greece needs to escape its existing depression.
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