Greece may need a pigeonhole of its own as it strives to retreat unmanageable debt and the prospect of dispensing from the Euro currency zone
Euro as a currency was launched in 1999, with 11 official EuroZone members and today it accumulates 19 countries sharing the same currency. 30th June, 2015 Greece’s bailout program ends , when the country is unlikely to make a 1.6 billion euro ($1.8 billion) repayment to the International Monetary Fund.
When Greece joined Euro in 2001, confidence in Greek economy grew followed by a big economic boom. The situation ruffled for Greece after the financial crisis of 2008, where every European country underwent recession. Greece being the most vulnerably indebted country suffered the most.
Also the German dominated European Central Bank’s Monetary Policy, which Greece shares with the rest of Europe has endangered its Economic stability and thrust Greece into depression.
Greek PM Alexis Tsipras called the referendum over the weekend and shut down banks for a week and imposed a daily ATM withdrawal limit of 60 euros as it seeks to achieve short term monetary stability. The imposition of capital controls and temporary closure of banks has raised fears of the country’s exit from the Euro and spooked world markets, including India.
The arrival of Euro only fueled the debt binge. Greece borrowed at ridiculously low interest rates.
Contemplations on Greece Monetary Policies as well as its alignment with Europian Union also suggest that Greece could have boosted its economy with Drachama (original currency). Printing more of currency could have lowered the value of Drachama in international market, pushing exports horizon. It could also be an advantage for Greek debtors, with low interest rates encouraging investments.
SQUEEZED BETWEEN A CRUSHING DEBT BURDEN AND A DEEP DEPRESSION
With financial assistance from European Commission, European central bank as well as International Monetary Fund, Greece has been provided loan since last five years for financially sufficing its debt burden paying the cost with tax hikes and spending cuts. The austere terms of bailouts has resulted in extreme resentment among Greeks dowering the crisis level unemployment and poverty. Also, since 2010, Greek’s debt has been in European government’s hand, practically reducing the financial crisis in Greece if it defaults but also it has been engaged in a three-decade credit bringe starting in early 1980’s, spending money on plush government jobs, the political parties paying their followers well. This arose private sector wages making Greece a costly business centre.
Once out of the euro, Greece would also be forced to leave the EU. This is a doomsday scenario for Greece. Will it become a much poorer, badly run market closed off by capital controls or Grexit will benefit uplifting the economy in a longer run is what remains the question of the hour.
Hard Choice – Greece might accept Central Bank’s austerity or chose to defy which will further lead to its exit from Eurozone with debts at large. With referendum with voters stating ‘No’ in majority the government is still in discussions for the same. Considering the tradition, with its own currency, Greece could have defaulted on its debts and devalued, quickly erasing its international cost problem, and moved on within a few years. Cutting wages and prices is tougher, and takes longer. In that sense, the euro has prolonged the agony.
Greece is the first advanced economy to default on loans from the IMF IMPACT ON INDIAN ECONOMY
India’s software and engineering exports may take a hit and the country may also face larger capital outflows due to a weaker euro. Indian engineering exports would be impacted negatively if the European Union is hit from the Greece crisis as for India European Union is the largest destination for such shipments.
The interest rate may firm up in Europe. In case of firming up of interest rate in Europe, there can be outflow of capital from India. This triggering of capital outflows from India requires RBI and Government’s introspection and accorded action. But overall, macroeconomic parameters are decent for India.
India needs to safeguard itself from the Greece crisis by guarding its financial institutions and limiting exposure to countries where the impact of the crisis could be felt more. India needs to expedite the approvals on the bigtime investments and projects so that the money may continue to flow in the country.
Ever since the Greek crisis first uncurled, India has made the most progress in keeping the domestic economy brick walled. India has taken the biggest tread on fundamental macroeconomic indicators, particularly by way of stabilizing external imbalances and amassing foreign exchange reserves, indicating the RBI’s elevated capability to provide sanctuary to the rupee against big capital outflows. The primary decider of fate of most in the European union are the 28 national government, that has the decision making power specially on politically fragile things like migrants and money, each one with the onus on to its tax payers and voters.
While the tension has become more acute since the January 1999 introduction of the euro, which now binds 19 nations into a single currency zone, managed by the European Central Bank, but leaves budget and tax policy to each country, most economists view it as a strategy for ultimate pandemonium.
Most international banks and foreign investors have sold their Greek bonds and other holdings, so they are not vulnerable to what happens in Greece. Private investors betting on a comeback, regret that decision. The Greek parliament has voted to back Prime Minister Alexis Tsipras after his presentation of a threeyear rescue programme to keep the country in the eurozone.
Its a 79bn worth bail-out and in return the government has plans to carry out a tranformational austerity rearrangement worth nearly13bn. Meanwhile other crisis countries like Portugal, Ireland and Spain, have taken steps to overhaul their economies in the euro-zone.