The Euro

I am not an expert on the matter, but the Wikipedia article suggests that the main causes were the following:

Wikipedia said:
  • GDP growth rates: After 2008, GDP growth rates were lower than the Greek national statistical agency had anticipated. In the official report, the Greek ministry of finance reports the need for implementing economic reforms to improve competitiveness, among others by reducing salaries and bureaucracy,[69] and the need to redirect much of its current governmental spending from non-growth sectors (e.g. military) into growth stimulating sectors.
  • Government deficit: Huge fiscal imbalances developed during the six years from 2004 to 2009, where "the output increased in nominal terms by 40%, while central government primary expenditures increased by 87% against an increase of only 31% in tax revenues." In the report the Greek Ministry of Finance states the aim to restore the fiscal balance of the public budget, by implementing permanent real expenditure cuts (meaning expenditures are only allowed to grow 3.8% from 2009 to 2013, which is below the expected inflation at 6.9%), and with overall revenues planned to grow 31.5% from 2009 to 2013, secured not only by new/higher taxes but also by a major reform of the ineffective Tax Collection System.
  • Government debt-level: Mainly deteriorated in 2009 due to the higher than expected government deficit. Since the debt-to-GDP ratio had not been reduced during the good years with strong economic growth (2000-2007), there was no longer any headroom left for the government to continue running large deficits in 2010, neither for the years ahead, due to the annual debt-service costs being on the rise towards an unsustainable level. Implementation of an urgent fiscal consolidation plan was therefore needed, to ensure the deficit rapidly would decline to a level compatible with a declining debt-to-GDP ratio (not exceeding its sustainable limit). The Greek government assessed it was not enough just to implement their presented list of needed structural economic reforms, as the debt then still would develop rapidly into an unsustainable size in the short-term, before the positive results of such reforms - which typically first materialize after being implemented and working for a couple of years - could be achieved. On this basis the government's report emphasized, that in addition to implementing the needed structural economic reforms, it was urgent each year in the coming four-year period also to implement packages of both permanent and temporary austerity measures (with a size relative to GDP of 4.0% in 2010, 3.1% in 2011, 2.8% in 2012 and 0.8% in 2013). Implementation of this entire package of structural reforms and austerity measures, in combination with an expected return of positive economic growth in 2011, would then result in the baseline deficit being forecast to decrease from €30.6 billion in 2009 to only €5.7 billion in 2013, while the debt-level relative to GDP would stabilize at 120% in 2010-2011 and begin declining again in 2012 and 2013.
  • Budget compliance: Budget compliance was acknowledged to be in strong need of future improvement, and for 2009 it was even found to be "A lot worse than normal, due to economic control being more lax in a year with political elections". In order to improve the level of budget compliance for upcoming years, the Greek government wanted to implement a new reform to strengthen the monitoring system in 2010, making it possible to keep better track on the future developments of revenues and expenses, both at the governmental and local level.
  • Statistical credibility: Problems with unreliable data had existed ever since Greece applied for membership of the Euro in 1999.[70] In the five years from 2005 to 2009, Eurostat each year noted a reservation about the fiscal statistical numbers for Greece, and too often previously reported figures got revised to a somewhat worse figure, after a couple of years.[71][72][73]In regards of 2009 the flawed statistics made it impossible to predict accurate numbers for GDP growth, budget deficit and the public debt; which by the end of the year all turned out to be worse than originally anticipated. Problems with statistical credibility were also evident in several other countries,[74][75][76][77][78][79][80][81][82][83][84][85][86] however, in the case of Greece, the magnitude of the 2009 revisions and its connection to the crisis added pressure to the need for immediate improvement. In 2010, the Greek ministry of finance reported the need to restore the trust among financial investors, and to correct previous statistical methodological issues, "by making the National Statistics Service an independent legal entity and phasing in, during the first quarter of 2010, all the necessary checks and balances that will improve the accuracy and reporting of fiscal statistics".[69]
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So, likely, joining the Euro zone with these conditions was not the best idea, but I tend to believe that the problem would otherwise also have occurred.
 
Also from Wikipedia:
Likewise, Paul Krugman argued that the existence of a single shared currency across the entire eurozone, in combination with tight money policies of the ECB (motivated by insistence of Germany on low inflation), placed much of the Southern Europe in a state of permanent high unemployment. According to Krugman, during the period between the creation of the euro and the 2008 financial crisis, countries of Southern Europe experienced abnormally high rates of wage growth due to high influx of investor money. Between 2000 and 2008, unit labor costs actually declined slightly in Germany, but rose by 30% in Spain and Greece.[105] This created an imbalance that put these countries at competitive disadvantage relative to Northern Europe. Returning to full employment at this point requires that the labor costs gap is somehow cancelled. If Spain and Greece had their own currencies, this would have easily happened through exchange rate adjustment. Since they don't, it can either happen through a decrease in nominal wages in Spain and Greece, also known as "internal devaluation", (an extremely difficult and slow process, since nominal wages, in general, exhibit downward rigidity), or through an equal increase in nominal wages (i.e. inflation) in Northern Europe, which does not happen because of active resistance from Germany.[106][107]
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(My emphasis.)
So the huge unemployment in southern Europe appears to be directly related to the Euro.
 
I think of countries as like spinning wheels, so you need different currencies, that act like gears, that connect all those spinning wheels and engines. Having one currency means that some countries get ground up.
 
I read somewhere, that strong economies like Germany, benefit from being joined to weak economies, like Greece, as it stops the currency becoming too strong, which means that Germany is able to keep selling abroad(outside the Eurozone)...if the Euro became too strong, then places like the US would find it too expensive to buy German products......so Germany may not want Greece to leave the Euro.
 
Blobbenstein said:
I read somewhere, that strong economies like Germany, benefit from being joined to weak economies, like Greece, as it stops the currency becoming too strong, which means that Germany is able to keep selling abroad(outside the Eurozone)...if the Euro became too strong, then places like the US would find it too expensive to buy German products......so Germany may not want Greece to leave the Euro.
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I've read on Counterpunch that Germany is still trying to control Greece, this time economically rather than militarily. Probably accurate. Of course Greece defaulting may have worldwide ramifications. Merkel sure seems like a lousy human being.
 
I think also, a weak economy having a strong currency can't be good for it. It means that they would be less competitive abroad, and for tourists.
 
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the way I think it might go is: Germany benefits from having weak economies linked to the currency it uses, but the German public demand that Greece have to bring in austerity, so the politicians push that, even if they don't really want to.

The rightwing, rich controlled, media will probably not give up on pushing austerity(as that is one way to gradually buy up stated owned assets, and pushes the 'blame the poor' scapegoat ethos), so Greece will be forced to leave the Euro.
 
maybe there should be a two tier Euro system. One currency for strong economies; one currency for the weaker ones.
 
Blobbenstein said:
maybe there should be a two tier Euro system. One currency for strong economies; one currency for the weaker ones.
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I think each of the weaker ones would need their own currency in order to be able to tweak the interest rates and exchange rates just right for their circumstances.

Hard to say what will happen to Greece. It doesn't seem the negotiations are getting anywhere. I wonder what the implications of a default would be? Worse than the demanded austerity measures?
 
well, if they can't pay, they can't pay. Not much Germany etc can do about that....Greece should negotiate for a writing off of all the loans, and leave the Euro, I think....actually, they might need another loan to start them off.

I'm sure the rich will try to buy up as much of Greece and its assets as part of the deal.
 

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