This article poses many possible scenarios for the future of the euro and the European Union, given many factors like Brexit and the financial crisis in Greece. If one or more members (like Greece) quit the European Union, would that actually save the euro? Greece is clearly a lame duck, its GDP per person has fallen by 45% since late 2009 and unemployment rates have reached nearly 50%. This is astonishing. To make matters worse, the International Monetary Fund anticipates that Greece will never be able to repay its debts, which have reached 180% of the nation and continue to rise. Despite their impending economic doom, Greece’s government has steadfastly rejected more austerity measures. The article argues that Greece has not already departed from the European Union in part due to a lack of orderly procedures; if the process for leaving the euro were more clearcut, it is possible that a Greek withdrawal would become more attractive. On the other hand, EU and other officials say that it is impossible to leave. However, what would actually happen if Greece were to withdraw? The article explains that existing euro notes could continue to be used, and most Greek banks would go bust, but more stringent capital controls could be enacted. Additionally, the ECB could provide the Bank of Greece with plenty of liquidity, and at the end of the day, the economy (particularly the tourist industry) would reap large benefits from a substantial devaluation. A Greek departure is a frightening prospect for EU member countries; if Greek managed to leave the euro, the myth that there is no way out of the euro would be “instantly exploded” and perhaps Portugal or Italy would follow, resulting in a collapse. The author of this article argues that this is an exaggerated prediction; Greece accounts for only 2% of the EU's GDP and would therefore not have the catastrophic impacts anticipated by many economists. The second main objection, of course is the potential cost of “Grexit.” Interestingly, some economists have suggested that Germany should leave the euro and rejoin later at a higher rate. The argument is that the underlying causes of the euro’s problems are Germany’s strong competitiveness and its huge current-account surplus. This idea, though is politically implausible. One thing is for sure, the future of the European Union is growing increasingly unstable, and some action needs to be taken to if the Union and the euro are to be preserved.
"Leaving the Euro Would Be Devilishly Difficult." The Economist. The Economist Newspaper, 25 Mar. 2017. Web. 01 Apr. 2017.
http://www.economist.com/news/special-report/21719195-it-would-not-however-be-impossible-leaving-euro-would-be-devilishly-difficult
4 comments:
One of the largest problems with the Euro is the huge gap between the economic success of many countries. There is Germany, which is incredibly successful, and then there is Greece. So, of the EU to be more successful countries need to give into the concept of a golden straightjacket and sacrifice their own success to relieve the less successful countries. With the inflexibility of some nations, others seem to continue to suffer.
I agree with Elise that the economic gap between countries of Euro is too large. As we talked about in class, Germany does benefit a lot from the Euro, that's also because it takes its own advantages and uses the Euro properly. At the same time, Greece also benefits from the Euro and also the European Union. It gets money help from other Euro countries too. You are in the union, you get benefits and you should follow the rules.
Also In the banking sector, non-performing loans are reaching worrying levels in some member states, especially in Cyprus, Greece, and Italy, casting doubts over the resilience of Europe's banking sector. On the fiscal side, the severe debt overhang, both in the public and the private sector, and the increasing share of countries with excessive macroeconomic imbalances, are also a possible cause of concern, as they could have detrimental effects on other member states.
While I can understand the frustration of individuals within EU countries who feel that Greece is essentially "piggy-backing" off the success and economic well-being of other countries within the union while bringing little to the table in return, I could see, contrary to the author's argument, a dangerous precedent being set if Greece were to leave. Even if the economic consequences of Greece's departure were relatively manageable, the socio-political impact of such a departure could be harmful in the long run.
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