The Greek Debt Crisis

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Following the events of the catastrophic 2008 European Financial Crisis, members of the Eurozone began to fear for what they once thought was impossible; the collapse of the Eurozone. After hopes of a speedy recover proved futile, European leaders expected recovery processes to take longer than anticipated. The P.I.G.S. members of the Eurozone, Portugal, Ireland, Greece, and Spain, were hit hardest by the financial crisis, with Greece undoubtedly being in the worst economic condition. Being brought to the brink of collapse, Greece can attribute to its poor economic condition from its reckless deficit spending, poor fiscal policy, and weak state institutions. While many called for “the New Sick Man of Europe” to default on its debt and abandon the euro, Greece made the right decision to remain part of the Eurozone, where leaving would have caused far more severe consequence in the long term.
The Eurozone, as an economic and monetary union, was used as a means to provide a uniform currency for Europe. Creating what Nobel Prize winning economist, Robert Mundell, calls an “Optimum Currency Area”, allowed for more efficient trade within and outside of the EU, by eliminating the risks caused by competing currencies and reduced transaction costs. Greece was the first country to gain membership into the Eurozone outside of the original eleven member states, despite being in a rather poor economic condition at the time. Since the late 1970s to the early 1990s, Greece inflation rate continued to grow at very high levels, topping off just under 19% (Gargana and Tavlas, xxxiii). Greece’s debt also continued to increase from 27% of the GDP in 1979, to 111.6% in 1993 (Garganas and Tavlas, xxxiv). During Greece’s accession process in the fi...

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