Contents

Introduction………………………………………………………………………………………..3

Causesof Greece financial crisis……………………………………………………………….…3

EuropeanUnion’s response to Greece crisis………………………………………………………4

Impactsof Europeans Union’s response to the Greece crisis……………………………………..8

Effectsof Europeans Union’s response to the Greece crisis…………………………………….10

Conclusion……………………………………………………………………………………….11

WorksCited………………………………………………………………………………………13

EuropeanUnion’s Responseto theGreek Crisis

Financialregression andcrisisare evidentin manycountrieswherebyunfavorabletermsof tradeandlossesresultto incredibledebts.TheEurozone is a victimof thecircumstancewith three countries,thatis, Greece, Portugal, andIreland (Lane 51). Thesecountriesare on thevergeof beingassistedby theinternationalmonetaryfundto avoiddefaultson loans.Of greatimportanceis Greece whoseregression has attractedtheattentionof theEuropean Union due to its effecton thestabilityof theregion.Greece controlsonly2.5% of theEuropean Union economy.However,its downfallhas an adverseeffecton howinvestors perceptionof theregionin termsof businessviability.

Adecade agothecountryenjoyedhighreturnsdueto localandforeigninvestments.Foreigninvestors regardedGreece’s moveof joiningtheEuropean Union as viable to supportprofit-making ventures.However,severalfactorsaffectedthemove,andthingsgotbitterin theeconomy.Thegovernment’sdebtsshotupbeyond thecountry’sgrossdomesticproduct.Thestate’sexpendituresoutweighedtherevenuescollected,andthisinstigatedthegovernmentto borrowfrom localcreditorsandtheinternationalmonetarybodies(Kontochristou andEvi 51).

Causesof the Greece financial crisis

Thereare severalkeycausesof theGreece crisis.Thisdocumentattemptsto giveinsighton thefollowingqueryhowdidtheEuropean Union respondto theGreek crisisandwhatare theimpactsof theresponse?

First,after joiningtheEuropean Union, thegovernmentdidnot discloseall thenecessaryinformation.There wasa lotof withholding of vitalinformationthat could be usedinvestors andcreditorsas a predicamentof a country`abilityto repaydebts.TheEuropean statistic bodydetectedreservationsnot disclosedto theregionalbody.Thecrucialinformationrelatingto thecountry’srevenuebarredcreditorsfrom accessingtheactualstatusof thenation.Theartificialdatawasfavorablein their eyesuntil whentheregression started.Thebodyhadto interveneto protecttheinterestsof thecountryfrom thedemandsof thedebtors.Thepartiesreachedan agreementto extendthematurityof theloanswith theuniongivingout morethan 136 billion dollarsto bailout thedebtsfora periodof one year(Kouretas andVlamis 393).

Secondly,theexpendituresas laidout by thegovernmentdidnot reflectthecountry’sincome.Thestateinvolvedmoneylendersto fundthedeficitwith thehopeof achievinga bettereconomicsituation.Conversely, moreexpendituretranslatedto moredebtsandtheinabilityof thecountryto raiseenoughfundsto repaythecreditorsmadeworsened thesituation.Morethan 51% of thecreditorswereprivateentitiesandtheir demandsforcedthecountryseektheinterventionof theinternationalmonetaryfundandtheEuropean Union. Mostof the136 billion dollarsgivenout to bailout thecountrycateredforthesedebts(Kouretas andVlamis 395).

European’sUnion Response to the Greece situation

TheEurozone could not snubtheGreece situationdue to its adverseeffectson thereputationof theeconomyof thecountries.Thebodythereforedideverything within its powerto savethesituation.Its reactionwasa comprehensiveandmultidimensional to not onlysavethecountryout of its financialcrisisbutalsoimprovethestructuresmarredby corruptionandmisappropriation of funds.The2.5% of thesharecontrolledby Greece is powerfulenoughto drawawayinvestors, andtheunioncould not takechances.Severalconditionshadto be followedby Greece before receivingfinancialassistance(Kouretas andVlamis 393).

TheEconomic andFinancial Affairs Council metin Brussels andputforthseveralconditions.TheEuropean Union justlike anyotherregionalbodyoperatesunder certainrulesthat holdthecountriesresponsibleforanycausewithin theunion.However,despite havinga collectivecontrolover policies,individualcountriesare responsibleto developautonomouslocalpoliciescompliantwith theparticularprovisionsof theunion.Internalpoliciesthat may not auger wellwith theothercountriesare not subjectto thejurisdictionof theUnion. Greece has policiesgoverningits expendituresandcreditlimit,andtheycannot be changedby theothercountriescollectively. However,its dilapidating statecould not remainunattendeddue to thedangersitposedto theeconomicwell-beingandsustainability of theregion.Forthisreason,theEuropean Union hada strongrationaleto intervene(Nouriel andMihm 55).

Countriesin theEuro Zone useone currencyandits stabilitymay be affectedby theeconomyof an individualmembercountry.In Greece, theinterestearnedon bondsdroppedto an extentof goingat a loss.Thedrasticdevaluation indicatedan unfavorableandunpromisingfutureforthecurrency.Investors could, therefore,avoidinvestingin Eurobonds fearingthespreadandcontinuationof theGreece situation.TheUnion, therefore,hadto interveneto savethefaceof Greece andtheregionat large.Thesustainable trendof thecurrencyreflectstheprevailingeconomicenvironmentin theregion.

Theabilityof theGreece governmentto meettheneedsof its currentgenerationwithout compromisingthefutureof thefutureeconomyis at risk.Thecountryearnsfameas havingregulardeficitson its budget.Thepercentageof theloansexceedstheGross Domestic Product by morethan 100%. Countriesthat residein thezonecomply to theunionswith thecollectiveagreementthat countrieswill not lendto eachotherto coverbudgetdeficits.Somecountrieslike Sweden are biblical about thisprovisionwhileothers showsignof reservationsforeconomically disenfranchised countries.Theunionhas to stepin to enforcetheobservationof theregulations.Besides this,themoveis an inputto enforceindividualcountriesdisciplinein their spending andallocation of resources.Fora countrywith expendituresbeyond its GDP on a continuousbasis,thepotential to meetthedebtors’requirementshas adverseeffects(Nouriel andMihm 58).

Anothermajorinstigator of theEuropeans Union involvementin theGreece situationis thefactthesituationbenchmarks theactiontakento assistsucheconomies.Greece is onlya pronouncedsampleof thecountriesfacingeconomicregression in Europe. There are othergovernmentsknockingo thedoorfortheinterventionof theinternationalmonetaryfundthrough theunionto revivetheir nearlycollapsingeconomies.Thecountriesin thiscategoryincludePortugal andSpain. Thewaythebodydealswith themaidensituationmarksthebouncing boardforpoliciesto be adoptedby othercountries.Itis, therefore,crucialto ensurethatanyassistancerenderedto thenationis consistentwith theprovisionsof theinternationalmonetaryfundandtheeuro zoneregulations.Theinternationalmonetaryfundhas a limitedmandateto releaseloansto countriestermed as developedspeciallyto balancetheir expendituresorto settletheir debts.Anyformof aid,therefore,has to comecleanunder thescrutinyof thegoverningbodyforsustainability purposes(Nouriel andMihm 68).

Greeceis importantin theeuro zonebecauseitextendstheloanlimitsof membercountries.Through bilateralloanagreementsbetween countries,governmentsreleasethemoneyto eachother.Theestablishmentof theEuropean Financial Stability Facility (EFSF) requiressomecountriesto givea percentageof their revenuein theformof loansto economically challenged members.Greece inflatestheamountthesecountriesgiveout. Ifseveralcountries,unfortunately,followthetrendtheeconomyof theleveragenationswill not be sustainable. TheEFSF has themandateto outlinetherulesthat governbilaterallending. Since it is an institutionof theEU, theUnion needsto maintaina cohesive integrationwithout burdeningothereconomiesunnecessarily.

Thefutureintegrationof theEuropean countriesis on thevergeof weakeningdue to thepronouncednatureof theeconomicdilapidationof Greece. Thechallengeof theeuro zonedoesnot findreadymade solutionsdue to theabsenceof experience.Thezonal proceduresfailto addressseveralareasconcerningtheoutrightlimitationof theIMF on lendingto thedevelopedcountries.Thoughthemonetaryunionreleasesthemoneyto Greece, somecountriesfeelthatthecountry’sautonomyto dealwith its problemsis compromised.Others are strictlycompliantwith thelaidout strategies,andthispresentsa conflict.Thefutureof a cohesive relationshipshould not be thwartedby a singlecase.However,itcannot be possiblewithout theinterventionof an acceptedinclusivebody(Kouretas andVlamis 399).

Tocounter thechallenges,thestructureof theEuropean Union adjustedits measuresandprovisions.Somewerecustomized to suittheconditionin Greece. An emergencymeetingheldin Brussels gavea wayforward.First,thegovernmenthadto privatize mostthestate-owned corporationsto averttheir trendof lossmakingandeatinginto thecountry’srevenues.Theparastatals werecorruptiondomainsmarkedby excessivemisusef fundsandmisappropriation. Thegovernmentwas,however,reluctantto maketherequirementoperational, andthisdelayedtheassistance.Secondly,thedatehadto restorethefiscalbalanceandreducethegovernment’sexpenditureespeciallyon recurrentissues.Thedifferencein thefiscalbalancemadethecountryveryunstable.In thelongrun,thesituationwould resultin a situationof inabilityto repayloanowedto financialinstitutionsandprivatecreditors.Thirdly, theCouncil calledforthereformsin thestructuresthat are primaryto theGreece economy.Thesittingwasnot shyof thecorruptionandinefficiencyin thepublicinstitutions.Thecontrolover theselaysquarelyon thegovernment.Consequently, there wasa reorganizationof themanagementsystemin thegovernments a compliantmove(Kouretas andVlamis 401).

TheBrussels’ conventionprioritized thecaseandopted foremergencymeasuresto savethecountryandpreventthesituationof anotherdeterioratedeconomyfrom takingplace.Theprioritywasto strikean understandingbetween lendersandthegovernment.Due to unfriendlyandunsustainable fiscalbalance,lendersagreedto extendthematurityof their loansuntil a furtherdatewhentheywould settlethem. To bailthecountryout, theEuropean Financial Stabilization Mechanism through theinternationalmonetaryfundreleased136 billion dollarsin phasesto paythecreditors(Haidar 11).

Impactsof European’s Union response

TheEuro’s responseto thefinancialchallengein Greece has severalimpactso thespecialorderin Greece wellas therelationshipof thecountrywith othernations.Ithas alsohelpedthecountryin dealingwith thecreditors.First,thecreditorswhoreleasedfundsto revivethecountry’seconomyacceptedto extendthepaymentperiod.Itwould not havebeenpossiblewithout theinterventionof theregionalbody.Greece has nobargainingpowerover thelendersdue to thecontinueddeteriorationof theeconomy.Of all thecreditors,51% are privateentitiesorindividuals.Thenationalrevenuecollectedis not enoughto settlethedebtsandto culminatethechallengetheinternationalmonetaryfundhas limitedsupportfora developedcountry.TheEuropean Financial Stability Facility actsas a favorableoptionfortheGreek government(Featherstone 193).

Secondly,a newgrowthpacthas beenestablishedwherebytheeconomically stablegovernmentshavetheresponsibilityof assistingthecountriesunder a financialsiege.Greece has benchmarked theformationof a poolof emergencyfundto supportthefiscalcheckin theothercountries.Asmentionedearlier,theunionhas otherseveralstateswhoseeconomyis in a needycondition.However,the400 billion Euros are not enoughto bearingin mindthatthedebtorswill not payimmediately.Asthepioneerbeneficiaryof thefund,Greece has an upperhandover theotherneedycountriesthat may not obtaina loanfrom itanytime soon(Featherstone 194).

Apartfrom affectingtheeconomyof thecountry,thesocialarenaalsoreceivesits shareof revolutionmarkedby socialprotestagainst theregionalrequirements.To achievea desirablefiscalbalance,theEU requiresthegovernmentto cuton laborcostandrecurrentexpenditure.Theonlywayto thedealwith thesituationis to reducethesalariesof workersin thecivilarena.In a staggeringeconomy,workerswereagainst theproposal,andtheyengagedin a seriesof socialunrestsallover thecountry.Theywould ratherhavetheir countryexited from theunionanddealwith their economicchallengesautonomously. Thepresenceof demonstrators on thestreetputthegovernmentin a dilemmawhetherto pacifythelaborforceandgetthecreditorswrathorlookforhelpelsewhereoutside theEU. On a similarnote,privatizing thepublicinstitutionsloosensthegripthatthegovernmenthas controlandauthorityover resources.Itexplainswhythiswasthelastthingthestatewantedto dobefore receivinga majorbailout from theIMF. However,there wasnooptionfora governmentwithout thepotential of clearingits debtsornegotiatewith creditors(Nouriel andMihm 57).

TheEU with thesupportof someof its membersassertsa setof austeritymeasuresto disciplinethegovernmentswith referenceto takingcareof their individualcountrieseconomy.Theattentionof theEU to thedesperatestatusof Greece camewith ultimatumsthat neededfulfillmentbefore thecountryreceivedcustomized help.Theunionrequirestheprimeministerandthefinanceministerto makeeffortsin regulatingthebondearningsandcontrollingtheexpenses.Thefinancialassistancebodiesare not readyto helpthegovernmentwithout changingtheconditionof its revenueenvironment.Thenumberof timesthatthebudgetexcessestherevenuecollectedneededto be scaleddown. Currently, thedebtsexceedthedomesticrevenueby 130% (Marina, Mladovsky, Cylus, Thomson, Basu, Stuckler,Mackenbach, andMcKee 1336).

Effectsof Europeans response to the Greece crisis

Theresponsehas severaleffectson thecohesionof thecountrieswithin thisregion.Somecountrieshavefavorablefiscalbalances,andtheybeartheburdenof lendingto others evenwithout thepossibilityof beingrepaidat thestipulated time.ThesecountriesincludeFrance andGermany. Of all thedebtsowedto otherstatesthrough bilaterallending, Germany remainsthelargestcreditorto Greece. Itmay explainwhythere is a concernabout theabilityrevivingtheGreece economywithout enforcingdiscipline.Germany is totallyfortheideaof individualcountriestakingcontrolof their localeconomicpolicies.Forthisreason,there is a negativefeelingbetween thetwo nationsthat is a threatto thefutureof theEU integration.TheEU doesnot interferewith theinternalsystemsof government.However,there is a collectiveagreementfordisciplinein shapingtheeconomyin theindividualcountries(Marina et al. 1339).

FinancialandgrowthanalystsfeelthatGreece is a sacrificiallambof theEU’s intention.After a carefulevaluation, theyassertthatthecountry’seconomicsituationreceivesnopositiveimprovementespeciallyin thelongrun.Thecitizensalsoechothesamesentimentsthat thecountrywould ratherbe out of Euro Zone. Theperceptionthatthecountrygetsfrom theclosealliesis thatof a developedcountrywithout theneedof a lotof internalandexternalborrowing.Thecreditextendedto thecountry,therefore,is not enough.There are contemplationsof withdrawingthestatefrom theEuropean Union. Themovewould enablethegovernmentto obtainloansfrom othercountrieslike Russia andChina without havingto honorultimatumsandregionalrequirements.Asuccessfulimplementation of thisthoughtcould lureotherdisentangledeconomiesto followsuitiftheEU doesnot actwith immediateeffect.Thewaytheunionhandlesthissituationwill settheplatformforfutureresponses(Featherstone 197).

Conclusion

Inconclusion,Greece is justa tipof theicebergforthesituationin theEurozone. There are severalcountriesin needof financialassistance,butthesituationcallsforcorrectivemeasuresthat will not threatenthecohesionof theregionandat thesametimetakecareof thedeteriorating economy.Theregionalbodyshould not relaxsomeof its rulesregardingtotaldisclosureof countries’economicdata andthelocalfinancialstatus.TheGreece governmentfailedto lettheinvestors getaccessto vitalinformationandconsequently endedup riskingtheir resourcesin a collapsing economy.Theunioncannot be entirelyblamedforthedisenfranchised stateof Greece since its givesroomforautonomouseconomicpolicies.Thecontinuedunfavorablerelationshipbetween theleveragecountriesandtheneedyonesis a challengeto regionalintegration.Allmembersmust striveto limitinflationin their individualcountriesto maintainthestabilityof thecommoncurrency.In theregion,thesuccessr thefailureof one countrymeansa lotto theperceptionitgetsfrom foreigninvestors. Inconsiderateultimatumsandloanpre-requisites may leadto thematurityof theGreece governmentto withdrawthestatefrom theEuropean Union after a decade of unfavorablefiscalbalance.

WorksCited

Featherstone,Kevin. &quotThe JCMS Annual Lecture: The Greek Sovereign Debt Crisisand EMU: A Failing State in a Skewed Regime.&quot JCMS:Journal of Common Market Studies49.2 (2011): 193-217. Print.

Haidar,Jamal. &quotSovereign credit risk in the euro zone.&quot WorldEconomics13.1 (2012):10-15. Print

Kontochristou,Maria, and Mascha,Evi. &quotThe Euro Crisis and the Question ofSolidarity in the European Union: Disclosures and Manifestations inthe European Press.&quot Reviewof European Studies6.2 (2014): 50-51. Print.

Kouretas,Georgios, and Prodromos Vlamis. &quotThe Greek crisis: causes andimplications.&quot Panoeconomicus57.4 (2010): 391-404. Print.

Lane,Philip. &quotThe European sovereign debt crisis.&quot TheJournal of Economic Perspectives26.3 (2012): 49-67.

Marina,Karanikolos, Mladovsky, Philipa,, Cylus, Jonathan, Thomson, Sarah ,Basu, Sanjay Stuckler, David, Mackenbach, Johan and McKee, Martin.&quotFinancial crisis, austerity, and health in Europe.&quot TheLancet381.9874 (2013): 1323-1331. Print.

Nouriel,Roubini and Mihm, Stephen. Crisiseconomics.United Kingdm: Penguin Publishers, 2010. Print.