>>The Question of Greece’s Eurozone Membership can affect EUR

The Question of Greece’s Eurozone Membership can affect EUR

The Question of Greece’s Eurozone Membership can affect EURThe Eurozone is facing a serious sovereign debt crisis. A number of Eurozone member countries including Greece have borrowed money from other European countries in an attempt to avoid defaulting on debt. The country’s future in the Eurozone is looking increasingly shaky.

Greece has the highest levels of public debt in the Eurozone. She was the first country to come to the Eurozone and IMF for financial assistance. A few years ago, the Greek government, the European officials, the European Central Bank and the IMF have undertaken significant crisis response measures. In July 2011, at directive of European leaders, holders of Greek bonds have said that they will accept losses on the Greek debt on their investment. They indicated this because they wanted to eliminate Greek’s debt payment in the short-run.

While there are many divided opinions about whether or not Greece should leave the Euro. Several economists strongly believe that it is time for the country to start building up its economy. And one of the ways to build a strong economy is to leave the Eurozone.

There was a time Greece enjoyed an economic stability, and it looked like the Euro was the best currency to keep the country’s economy stable. Today this might not be the case. Most analysts think that the Euro could be the major obstacle that is hindering the growth of the country’s economic scenario.

A few days ago, war of words between Greek officials and country’s international creditors ignited a little confidence that the parties will reach an agreement that would finally save the country from possible removal from the Eurozone. Creditors wanted to free up over $17 billion in emergency aid for the ailing country. This was supposed to be part of a new five-month bail extension, according the BBC and Reuters. However, Chancellor Angela Merkel termed the deal as extremely generous.

Even so, the idea did not sit well with the Greek government. They said terms of the extension are too strict, hence cannot be accepted. The creditors demanded thorough recession reforms as one of the conditions for funding. However, Greek said it is impossible to achieve that over the five month period. Since then, there has been a barrage of warnings that Greece risks a forceful exit from the Eurozone should it fail to strike a deal with its international creditors.

Despite the warnings for Greece to settle its debt, Greek Financed Minister said that he doesn’t expect the deal to be finalized any time soon. But it has been made very clear that failure to reach an agreement would definitely lead to the country withdrawal from the Eurozone. This might also lead to their expulsion from the European Union.

What happens if Greece leaves the Eurozone?

If Greece will be banished from Euro, the single currency will no doubt lead to a deep depression, a spike in an employment and a dramatic decline in incomes. The Euro could face depreciation and leave the Eurozone in danger of multitudes of investors retreating to safer zones.

In addition, if Greece walks out of the Eurozone, investors will start to view the weaker European economies, such as Ireland, Cyprus, Spain and Portugal as risks. This means that European countries will be forced to pay high interest rates whenever they want to borrow money.

Final Thoughts

The Euro’s goal to become the world’s most powerful currency has been shattered by the financial crisis in Greece. With Greece dealing with the debt defaulting issue, the Euro has depreciated substantially. Financial analysts predict that the political and economic scenario in the Southern European country could heighten – and that again is bad news for the Euro. All said and done, Greece is still in dilemma as to whether she should exit the Eurozone or not. Some economists have supported the move, while others think that idea does not make any altogether.

2016-12-27T20:38:34+00:00July 5th, 2015|Categories: Insights - Tips & Resources|Tags: , , , , , , |