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The Impact of the Possible Expulsion of Greek from the Eurozone - Essay Example

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This essay "The Impact of the Possible Expulsion of Greek from the Eurozone" discusses the country which has been the most affected by the financial crisis, which has considered the move to exit the Eurozone, and also how massively affected the 2009 financial crisis in the global economy…
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The Impact of the Possible Expulsion of Greek from the Eurozone
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Eurozone Crisis: The Impact of the Possible Expulsion of Greek from the Eurozone The 2009 financial crisis massively affected the global economy. Numerous nations including the greatest economic powers recorded minimized or not economic growth. Economic factors such as employment and corporate financial stabilities dropped significantly. The recovery from the crisis has been steady with regions being able to reverse the poor economic showings. However, the recovery process has not been equally effective across the globe. Nations mostly in the Eurozone have failed to recover financial stability five years later from the global crisis. The Eurozone has been faced with numerous shortcomings in the efforts to restore financial stability in the region. The major problem has been enabling the coping abilities of countries which have been mostly affected. In the Eurozone, Greece has been the most affected by the financial crisis. The responsibility of the Eurozone in such situations is increasing its funding to the affected countries. The deficit margin in Greece is, however, large, and nations in the Eurozone would be massively affected if the country is bailed out from this situation. For this reason, the debate of expelling Greece from the Eurozone was raised. However, Greece can only exit the Eurozone from its own will. The country has considered the move but criticism from its citizens made it impossible. This paper will analyze the likely impact on Greece and the Eurozone if the country decides to expel itself from the Eurozone. It Greece exits the region, are other countries facing similar problems likely to consider the same move? I. The Impact on the New Currency All nations in the Eurozone share the same currency in the effort to improve trade relations in the region. For many, years this form of currency has been effective in the region and specifically important to countries in the region. The nations have been able to compete competitively with leading currencies across the globe. This nature has been enabled by the existence of the Eurozone. However, minus the absence of the Eurozone the currency in nations across the region would be near to worthless minus the collectiveness of the euro. The exit of Greece from the Eurozone would mean that the nation would be required to use a near currency, probably the Drachma. In an argument by Kuger the new currency would lose 80% against the Euro after few weeks of realization (7). This would hinder any form of realistic trade between Greece and the region. The situation would be worse if the currency is to be compared by other global currency like the dollar. Kuger asserts that the new currency would be only beneficial for the income of the country through tourism and exports (8). However, Greece has a massive import bill. This is based on that the country has not functional industrial sector thus being required to import largely. The cost of the new import would be significantly high. This would directly increase the inflation growth. More specifically, the producers in Greek would import worth would massively surpass their revenue income. For this reason, the new currency as an impact of the Eurozone exit would be affected negatively. II. The Impact on the Financial Sector In the current situation the financial sector in Greece is devastated. The economy in the nation failed to pick after the 2009 financial crisis. The situation in the nation has been most impactful in the financial sector. Major Banks in the nation have recorded huge debts and as failed to repay the deficits. For this reason, the financial institutions have lacked the ability to sustain the public need to acquire the desired financial services. Apart from banks, most industries have failed to generate the required economic income to the GDP. In the current arrangement, Greece owes the Eurozone 120% of its GDP (Kuger 8). Regardless of this great margin, the presence of the Eurozone provides the greatest hope for the financial crisis in the Greece. The exit of Greece for the arrangement would mean that the nation would not be provided with money aid either from the Eurozone or the IMF (Kuger 8). From this consideration, the industrial economy ability to supply enough money to the GDP would be null. In addition, the financial institutions would not recover in time to increase the financial stability of the country and its citizens. Currently, the Greece public does not have the slightest hope in the banks. Most of the citizens prefer not to put their money into local banks. This has hindered the growth of the banks. Consequently, it is accurate to assert that minus the support of the Eurozone and the IMF after the exit would be the last hope for the revival of the financial problem in Greece. III. The Impact on the Public Finances Similar to all nations, the public sector dictates the direction of growth of a country. The stability of the public sector increases the suitability of a country to grow especially economically. In the Eurozone, the support by the regional bodies plays a massive role in supporting the public sector. Most countries in Europe borrow hugely from the EU to support their public finances. For instance, the ability to create employment in nations that have a dwindling economy is enabled by the financial aid provided by the EU. Consequently, the Greece economy has benefited significantly from this venture. In an argument by Kuger the sole existence of a stable public finance sector in Greece is directly enabled by the contribution by the EU (8). The public also recognizes these benefits. After the announcement that the Greece government was considering the move to exit the Eurozone, there was public unrest in the country on the lack of suitability of the government to make better decisions for the sake of the public. The exit would increase the unemployment rate which is at a high in Greece. The inability of the local industries to develop due to lack of financial aid from the EU would not make the situation better. With the public not using local banks for business, the public finance would not grow at least in the short term. For this reason, the public finances in Greece would be negatively affected if the nations results to exit the Eurozone. IV. The Effects of Cross-Border Trade In an argument by Kuger the advantages of being in a regional trade is the fact that levies imposed on trade are non-existent of minimal (8). In the Eurozone, the member states enjoy a free trade area that has a massive input in the growth of their economy. These nations operate in the region as one country as the trade of good in these countries is not taxed or levied. The relationship also increases the suitability of the nations to acquire goods from other member states. These eases the requirement to export or import commodities in the region. An exit from the Eurozone would automatically mean that Greece would exit from the EU. Kuger points out that regardless of the fact that Greece may request for inclusion the request may not be considered (8). The exit would also mean that Greece fails to benefit from the free trade area in the Eurozone. For this reason, the expense in the import process in the country would increase. This is also made significant from the fact that Greece does not have an industrial sector that would sustain the public needs. The country relies heavily on importation. With the free trade area the cost of the process was low and easily manageable due to the relations. In addition, the new currency in Greece would drop to 80% against the Euro making trade in the region as expensive as trade with any other region across the globe. This would massively dent the efforts of the country to increase its financial stability and public sector. V. The Creation of an Independent Nation and Economy This is the main advantage of the Greece exit from the Eurozone. However, the creation of a stable economy would be a long term benefit (Kuger 7). In an argument by Kuger the problem in the Eurozone is not as an effect of financial crisis only in Greece (2). For this reason, it is expected that even if with a Greece exit from the region, other nations in the area would be affected. For Greece, this would not affect then since they would have created an independent currency from the struggling Euro. With nations in the region still facing the crisis, the problem would not affect the independent Greek currency. In addition, Greek would not be required to contribute to the Eurozone to help solve the financial crisis in other nations. VI. Reprieve for the Eurozone and Donor Nations The crisis on Greece is a major burden for the region and financial stable nations which have to contribute to save the country (Kuger 4). Greece holds the greatest debt for the region as well as requires the greatest financial support in order to attain stability for its economy. However, an exit from the region would automatically mean that the region has no requirement to bail out the country. The country would direct the financial aid to other countries and the financial burden would minimize. Probability of other Nations Exiting the Eurozone In November 2010, the Irish government requested for financial assistance from the Eurozone. This was then followed by a request from Portugal in May 2011. This led to the creation of the European Financial Stability Facility. In June 2011 the facility was enlarged to €780 Billion (Kuger 2). Even with this massive number, the Eurozone could not be able to secure the financial stability of nations in the region. In addition, the Greece exit from the region would mean a deficit in the facility considering that the country has the largest debt in the region and an exit would mean that it could not be repaid. This would decrease the level at which the facility would be able to sustain the financial need of countries such as Portugal, Ireland and Italy. This would increase the probability of a possible exit of these countries from the Eurozone. The forecasted long-term benefits of the Greece exit from the EU would act as a motivation to countries facing similar problems. If Greece gains a long-term financial stability after the EU exit, other nations may follow the same strategy to increase their chances of attaining financial stability and independence. The decision may also be influenced by the fact that Italy, Ireland and Portugal are increasing their need for financial aid. The capacity of the Eurozone to provide the aid is diminishing (Kuger 2). With a Greece exit the capacity of the EU would decrease due to massive unpaid debt by the nation. Consequently, nations with financial strains would feel the need to exit the regional body. Work Cited Kuger, Markus. The Business Impact of Greek Euro-Zone Exit. Dun & Bradstreet (D&B). 2012. Pdf. Read More
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