What Is the Story Behind Greece’s Downfall? In 2015, Greece defaulted on its debt. Some said Greece simply fell into ” arrears .” However, it missed a €1.6 billion payment to the International Monetary Fund (IMF), making it the first developed nation to have missed such a payment.1 In 2001, Greece joined the Eurozone , which to some, precipitated Greece’s downfall. However, the Greek economy suffered structural problems before adopting the euro as its currency.1 Key Takeaways: Greece defaulted on a debt of €1.6 billion to the IMF in 2015.1 The financial crisis was largely the result of structural problems that ignored the loss of tax revenues due to systematic tax evasion.2 Greece was much less productive than other EU nations, making Greek goods and services less competitive and causing the nation to take on too much debt during the 2007 global financial crisis.2 Prior to 2001, Greece experienced high inflation, high fiscal and trade deficits, low growth, and problems with exchange rates. Greece gained entrance into the Eurozone by misrepresenting its debt and finances. Greece Before the Eurozone Before acceptance into the Eurozone in 2001, Greece’s economy was plagued by several problems. During the 1980s, the Greek government pursued expansionary fiscal and monetary policies. However, rather than strengthening the economy, the country suffered soaring inflation rates, high fiscal and trade deficits, low growth rates , and exchange rate crises. In this dismal economic environment, joining the European Monetary Union (EMU) appeared to offer a glimmer of hope. The belief was that the monetary union backed by the European Central Bank (EBC) would dampen inflation, help to lower nominal interest rates , encourage private investment, and spur economic growth. Further, the single currency would eliminate many transaction costs, leaving more money for the deficit and debt reduction.2 Conditional Acceptance […]
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