Founded on November 1, 1993, the European Union,
or EU as it is mostly referred as, is a politico-economic union of 28 member
states. European integration was eyed as an escape from the extreme nationalism
that had devastated the continent during the world wars. During the initial
decade, the EU enjoyed great success with active cooperation in defense,
labor reforms, environment issues. Most importantly, EU established a single
market through all its members. 19 member states also joined a monetary union
known as the euro zone, which uses the Euro as a single currency. The trouble
started at the end of 2009 when the global economy was already in recession and
a multi-year debt crisis took place in many EU members, with the worst affected
countries being Portugal, Ireland, Greece and Spain (PIGS).
Among them, Greece was the first member to have missed a payment
to IMF in 2015, defaulting on its IMF debt after having received a debt cut in
2012 and various other support measures from 2010-2015. It was preceded and
followed by tough austerity measures imposed on Greece , a referendum in the country
where the Greeks rejected the terms for the bailout packages. Finally reports
emerged that Greece had managed to secure a bailout package with the European
Union.
Throughout the years of Greece crisis, an ever increasing number
of pundits, broadsheet press columnists and experts were in complete agreement
with populists from the far left and the far right that fiscal consolidation
program is self-defeating, and Greece (and possibly other states in the
periphery) should abandon the euro zone in order to regain their
competitiveness.
However , that is not a feasible option both for Greece and the European
Union. Greece, in case of an exit, would have to establish the Drachma back
which in itself is a daunting task. They would have to ensure it without a
glitch as that in itself could give rise to a social unrest which is a tall
order considering how Greece can’t seem to come up with a stable government to
begin with.
It could also encourage other
struggling European nations like Portugal Spain and Italy to default on
payments, knowing that they have the option to go the Greece way in case of any
tough measures being imposed on them by EU or IMF. The existence of the euro
zone would be in jeopardy once the bigger debt-ridden countries such as Spain
and Italy think of leaving.
It could also be another potential
Lehman Tragedy waiting to happen. A financial meltdown can take place if
investors , banks and other EU countries are forced to accept crisis for
holding Greece debt.
The European union and the Euro would
suffer a tremendous credibility crisis by making it clear that any country’s
membership in the euro-zone could be revoked. The specter of more exits from
the euro zone would undoubtedly make it hard for European leaders to respond to
future crises.
Yes, the Greece officials of the past
and present and are responsible for aggravating this problem into a full blown
crisis, but Euro Zone can also not skirt off its share of blame mired by a lot
of mismanagement. They made the most terrible mistake in 2012 when they only
partially restructured Greece's debt , a lot of which the Greek owed to the
German banks.
From an economic perspective, it is
clear what Europe’s leaders should do. They need to restructure Greece’s total
debt of 317 billion Euros — about 177 percent of its GDP — and keep the country
a member of the European Union and NATO in the euro zone.
Hence, it is in both Greece and EU's
interest to end the threat to the euro zone by saving a small, paralyzed
country.
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