In what I like to call the Greek-o-nomic crisis, Greece is facing an economic dilemma: to leave the Eurozone, or to stay.
Before this crisis, Greece was the 40th richest country in the world, but, years of ignoring a flawed economy and understating budget problems is the source of Greece’s economic mess; their spending on pensions, social benefits, failure to adequately collect taxes and compensate for uncollected taxes, and of course, the splurge on the 2004 Olympic games all contributed to its rapidly increasing debt.
If action had been taken five years ago, the problem may have been rectified in a manner similar to that of Ireland or Portugal’s economic crises, which were solved with emergency funds from the European Central Bank, after which the countries were able to get back on their feet. The amount of bailout needed to solve Greece’s situation is three times as much as that of Portugal and Ireland’s.
Possibly tackier than the phrase “Greek-o-nomic crisis” is the word, “Grexit,” which involves Greece breaking off entirely from the Eurozone. Greece only makes up 1.3 percent of the Eurozone’s GDP, so it can be argued that autonomy from the European Union, for a while at least, would be good for the Eurozone, and in the long term, for Greece. Furthermore, if Greece stays, it will only keep eating away at the European Central Bank’s emergency fund. Germany and France, two of the largest contributors of GDP in the Eurozone, have already lent Greece billions of euros in hopes of helping boost the economy, but to no avail. In the long term, breaking off seems like a better option for both Greece and the Eurozone. Greece and the smaller countries in the Eurozone that have taken a hit from Greece’s inability to pay back loans may flounder for sometime, but once Greece resurfaces there will be a chance that their situation could be rectified.
However, it is important to realize that post-dissolution, Greece would face soaring unemployment, decreased incomes, devaluation of the Drachma, and the likely chance that banks will be even more reluctant to lend money to Greece. Greece will have to adopt harsher austerity measures — meaning that they must increase taxes, and cut pensions and government spending.
The Eurozone has to play its part as well — which includes reducing debt burden on Greece, at least by the larger countries like France, Germany and the United Kingdom.
On one hand, Greece living autonomously would be like trying to build itself up without a foundation, and would have to find other ways to generate revenue. On the other hand, Greece would have more of the means to dig itself out of debt. It would be able to control its economic overhauls, including pension cuts and tax increases, which were exchanged for bailout funds by creditors.
What would happen if Greece stayed in the Eurozone? At the rate that things are progressing now, Greece may just follow a downward spiral unless it increases economic overhauls drastically in order to receive substantial bailout. The amount of bailout is directly proportional to austerity measures that Greece needs to take. How tight can you hold Greece’s throat before it chokes to death?
Otherwise, in the worst-case scenario, Greece would have to default on their debt, which would likely mean the return to the drachma, posing new problems, including high inflation, which would lead to bankruptcy.
Economists are still debating this issue, and there seems to be no consensus just yet on what is right for Greece and the rest of the European Union. In the future, the European Union should adopt a more federal-like system that will enable the Eurozone members receive assistance in times of crises. But, if all else fails, Greece can just ambush the Turkish.