Greece Economic Crisis of 2011 and its Prospects in the EU as its Essay

Greece Economic Crisis of 2011 and its Prospects in the EU as its Member - Essay Example 306). The deficit stood at 12.8 percent of GDP instead of 3.6 percent of GDP (Akram et al. 307). Inflation also was higher than the EU average (Xafa). Greece also accumulated a large current account deficit. Consumers demanded foreign goods, which resulted in a current account deficit of $51.5 billion in 2008 (Akram et al. 309). Private debt as a result accumulated too. By the end of 2009, Greece was downgraded by most rating agencies. According to Akram et al., â€Å"in October 2009, Fitch had down shifted the Greek credibility to A- and further degraded to BBB+ by the end of December 2009. Standards & Poor’s and Moody also downgraded the Greece on the same grounds† (306). The prognosis by many was that Greece needed to leave the Euro zone (Akram et al. 306). Some even recommended that the Euro Zone should be partitioned on a north – south basis (Akram et al. 306). The trust of investors was destroyed. The government failed to impose reforms. Administration also failed to properly assess the situation in Greece prior to 2009 (Akram et al. 308). Corruption levels were high too, which placed Greece at the bottom of South Europe (Akram et al. 308). Tax evasion stood at 30 percent of GDP (Akram et al. 308). Instead of flowing into government pockets, and then being used to repay the debt, this money stayed in private hands. As a result, investors fled as Greece was downgraded. The Euro Zone was supposed to decrease exchange rate fluctuations of its member – countries. According to Mishkin, large exchange rate fluctuations damage the economy (319). They damage financial institutions and banks as fluctuations generate losses (Mishkin 319). A single, strong currency can decrease these fluctuations. The single currency is still overwhelmingly a...This paper is the best example of analysis of the economic crisis in Greece in 2011. The root causes of the crisis are identified, and possible ways of the crisis overcoming are presented. Prospect s of the EU as an integral organization are described Origins of the crisis lie in the Greek public debt. In the 1980’s and early 1990’s, interest payment on public debt comprised a large share of the state deficit). Until the end of the 1990’s, despite high levels of public debt, Greece had managed to maintain fiscal control and debt regulation, largely because of the EU membership and lower interest rates it had to pay on its debt. Greece was unable to finance its deficit without indebting itself, because of low levels of public saving since the 1980’s. As a result, most of the Greek public debt, 80 percent, ended up being owned by 2010 by foreign banks. Greece also accumulated a large current account deficit. Consumers demanded foreign goods, which resulted in a current account deficit of $51.5 billion in 2008. Private debt as a result accumulated too. By the end of 2009, Greece was downgraded by most rating agencies. The trust of investors was destroyed. The government failed to impose reforms. Administration also failed to properly assess the situation in Greece prior to 2009). Corruption levels were high too. Tax evasion stood at 30 percent of GDP. Politically, an exit by Greece could imply a disaster. The EU would not be viewed as a strong union. Investors might view it unfavorably as well, since failure to keep Greece could be viewed as a forecast for future crises among the EU members. Moreover, if Greece exits and is bailed out at a lower interest rate, other countries would find it profitable to leave as well.