With German Chancellor Angela Merkel visiting Greece this week, many eyes are turning back to this southern nation within the eurozone and wondering…has anything really been resolved? Since the financial crisis began in Greece, there have been many pundits discussing how best to avoid contagion to the rest of the eurozone. In fact, this is the main concern to many involved; it’s not that Greece is a large and important country within the eurozone, as it’s not, but the ramifications for the rest of the union are severe if it were to leave.
First, with German Chancellor Merkel visiting, there is a lot of negative sentiment from the Greek people towards her. While I do feel bad for some of the individual people suffering during this latest financial crisis, let’s not forget that a country, or a person for that matter, that spends more than it makes and racks up a massive debt has no one to blame but itself.
Two unions in Greece have already announced work stoppages and protests, which is silly. It’s not as if Merkel forced the Greek government to spend money like it was going out of style. The unions should get upset at themselves for taking a far greater share of the economy than they deserved all these years. Of course, in this day and age, people never blame themselves, even though the evidence is right in front of their face.
With Greece running out of money and without new funds, the financial crisis within the eurozone is, once again, set to increase in severity. New money to help out Greece will only come once an inspection is conducted and approved by the “troika” of agencies, namely the International Monetary Fund (IMF), the European Commission, and, of course, the European Central Bank (ECB). The troika is looking for more spending cuts, while Greece is basically saying enough is enough. Without an agreement, Greece will not receive its next installment, part of an aid package worth 173 billion euros.
But will any of this solve the financial crisis for Greece? I doubt it, and so do many others who are calling for the country to leave the eurozone and bring back their own currency—the drachma. The problem is that the financial crisis won’t end for Greece once it leaves the eurozone. In fact, for many, the financial crisis would be worse. The reason is that as soon as the new currency is introduced, the value would plummet, with estimates of 50%–75%.
On the surface, this would be great for tourism, yes. But if you were a Greek with any money saved or investments, you would see a massive decrease in wealth. Not to mention, huge inflation numbers. And any companies that make products would basically be unable to function, because while their prices would drop with the value of the currency, making them more competitive internationally, most of the inputs to make the goods are imported. Greece imports huge amounts of oil, aluminum, iron ore, and medicine, among other goods. These would all skyrocket in price, making the financial crisis worse over the short term.
In the long run, the economy would adjust naturally. At that point, the question is, can Greece survive outside of the eurozone and run its economy properly to avoid another financial crisis? History is not on their side, as the Greeks have already defaulted on their debt numerous times over the last 200 years. While many see the financial crisis ending if Greece were to leave the eurozone, over the short term, I would suggest the pain would be quite severe.