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Greece’s Financial Turmoil:
Greece’s Macroeconomic Effect on the European Union’s Economy
Maria Triantafillou
Professor Sowjanya Dharmasankar
ECN 202.004
17 December 2015

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Abstract
The last decade has shown a growing concern for the effects of Greece’s economy on its fellow
European Union members’ economy (France, Germany, Belgium, etc.). While Greece plunged
itself into debt, the European Union delayed assistance from the International Monetary Fund
(IMF), a step that could have strengthened Greece’s economy rather than deepening the crisis.
This essay explores the history of the monetary crisis of Greece, since it reached a catastrophic
deficit in 2008, and its macroeconomic effect on the European Union (EU). The discussion will
begin with Greece’s monetary history and how joining the European Union vastly affected the
country's financial dependency and stability. By joining the organization, Greece was no longer
in full control of its own political and financial decisions. Finally, the actions that Greece and
members of the European Union are taking today to repair the economy will be reviewed, along
with obstacles that stand in the way of these goals. This examination of Greece and it’s economic
standpoint displays a need for greater strategies to be implemented in order to pull the country
out of this deficit. If substantial steps are not taken soon, Greece, as a country, could diminish,
possibly taking other countries with it.

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Greece’s Financial Turmoil:
Greece’s Macroeconomic Effect on the European Union’s Economy
In recent years, Greece has been receiving attention from the media in regards to its
financial instability. Combined with decades of failed attempts to refinance the country and five
bankruptcies, Greece is facing a major economic crisis; not only with the country itself, but also
with the people of Greece. In this examination of Greece’s predicament, there will be a focus on
the key factors that have led such a country into these terrible conditions. In addition, Greece’s
decision to abandon its currency and join the Eurozone in 2001 disabled the country’s control of
its money flow, and has strained the monetary security of other Eurozone members, such as Italy,
France, and Spain. Other Eurozone countries, particularly Germany, have greatly attempted to
pull Greece out of its troubles. However, the resolution lies within the alteration of Greece’s
government approach to such issues.
The following review of Greece will establish the correlation between its financial deficit
and the growing risk of great debt in the European Union. First, there will be a discussion
regarding Greece’s financial history, followed by an analysis of the effects of joining the
European Union on Greece’s fiscal dependency. In addition, there will be a review of the steps
being taken today to attempt to pull Greece out of its current level of deficit. Finally, a
consideration of Greece’s macroeconomic effect on the European Union and other partnering
countries will be prevalent. Despite the recent assistance from countries, particularly Germany,
which have helped Greece, the resolution lies within the alteration of Greece’s government
approach to its monetary issues.
Greece’s Decision to Join the European Union

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In 2001, Greece agreed to join the European Union in efforts to boost the economy. The
organization has proved to be beneficial to the countries as a whole by providing unity among
the division of Europe. For example, the reduction of the exchange-rate price variation and the
strengthen assimilation of the markets supported Foreign Direct Investment in the European
Union (Koliopoulos & Veremis, 2009). However, not all the countries were able to exercise the
same amount of power in terms of the policies shared amongst the European Union. Aslund
(2010) explains that because the European Union treated the East European countries as
“second-class members”, the East Europeans faced rigid budget restraints and aimed for more
reasonable fiscal policies than the “first-class members” of the eurozone. Nonetheless, the
organization was able to unite the countries while omitting exchange-rate controls for fiscal
transactions, and allowing businesses and consumers to trade across borders without having to
convert currency (Staab, 2008). Greece’s joining encouraged stronger relations with other
countries in Europe. The European Union was created to better unite and boost the countries
included, but could its sole purpose have failed with Greece?
The Beginning: Greece’s Initial Deficit Realization
Everything, for Greece, changed in 2009 when the fiscal crisis began. Revelations came
in October of 2009 that Greece’s budget deficit was 13.6 percent of GDP and its public debt was
115 percent of GDP (Aslund 2010). Since Greece is a part of the European Union, it had to be
advised onwhat to do in their circumstances. In addition, other members of the EU are obligated
to assist a country in such a deficit. Lynn (2010) examines Greece’s standpoint as sparking a
sovereign debt crisis across the euro-zone. It had to be bailed out at a massive cost to the other
nations sharing the Euro, and assisting Greece meant abandoning all the policies established for

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the management of the currency. In all the chaos, the European Union initially denied any
assistance from the International Monetary Fund (IMF), which ended up hurting Greece and the
European Union more. The message from large EU cities, such as Paris, Brussels, and Berlin,
was that they could handle Greece on their own terms, as it is “on their territory”.
The eurozone countries unavoidably took on greater financial costs by delaying action
and holding Greece from the IMF. Aslund (2010) explains that the IMF is fundamentally fiscal
and technocratic, making it a viable crisis manager. The European Union and its governments are
predominantly political, which makes it difficult for them to make sensible financial decision for
such a deep deficit. Because the European Union tried to essentially take on the role of the IMF,
the resolution of the Greek crisis was convoluted. Although Greece was responsible for the
creation of the financial crisis, delaying relief deepened the damage done to the economy. This
small flaw in this huge crisis could have saved Greece and the European Union a great amount of
financial distress. However since Greece’s fiscal stability was overlooked, they are now trying to
take matters into their own hands.
“Grexit”
Recently, Greece has discussed leaving the European Union, a decision that could
ultimately help or destroy the Union. In efforts to avoid a “Grexit”, Germany has lent a hand to
provide financial relief to Greece, at least for a short period. In July of 2015, after Greece’s most
recent bankruptcy, Chancellor Angela Merkel and her finance minister,Wolfgang Schäuble urged
Parliament to back a bailout, being Greece’s third bailout in five years. The ultimate intention of
Germany was to keep Greece in the eurozone (Smale, 2015). Although there has not been a
“Grexit” yet, the crisis in Greece continues to be an ongoing issue today. If Greece were to leave

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the European Union, would it flourish? Or would it crumble? These mysteries remain
unanswered as the uncertainty of Greece’s future economy grows.
Current Issues in Greece
Currently, Alexis Tsipras, left-wing Prime Minister and head of the SYRIZA political
party in Greece, represents Greece in the European Union. Just re-elected in September of 2015,
Tsipras and his government have made improving Greece’s business environment a priority.
Issues such as pension cuts, tax increases on farmers, recapitalization of banks, privatization of
state assets and the unshackling of closed markets must all be addressed (Smith, 2015). Efforts
are surely being made by Greece in order to recover its economy. Nonetheless, Greece still needs
support from other countries in the European Union in order to fully recover and remain a
member of the organization.
According to Frank Gill, Standard & Poor’s credit analyst, without greater confidence in
a future for Greece within a currency union, co-existing with enough pro-growth policies to
support better employment opportunities, the odds of failure remain as real as the possibility of
success (as cited in Elliot, 2015). Regardless, the possibility of a “Grexit” remains plausible.
Without bailouts from the European Union, could Greece really stay afloat? Europe has clearly
warned that the nation’s exit from the eurozone will signal that there cannot be a second chance
for Greece if their commitments to the Union are not respected (Smith, 2015). The fate of Greece
remains in the hands of the country’s political leaders. With new-found challenges coming to
light, such as the migration of Syrian refugees through Greece, improving Greece’s economy
will be a difficult task.

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Global Impact
Greece’s instability as a country using the Euro could cause other countries using the
Euro to have an economical strain as well. How does this affect us here in the United States? We
could lose exports, along with imports, if the fiscal patterns continue to go south. Desmond
Lachman contends that immediate action by the European Central Bank (ECB) to limit
contagion to the rest of the European periphery must be expected to further significantly weaken
the Euro against the dollar that could have a material impact on the US trade balance. The crisis
could also result in Greece’s defaulting on the US$24 billion it owes to the IMF, which could
have implications for the US taxpayer (2015). As many people are not worried about Greece,
seeing as it is not the country they live in or near, they should start to be.
Macroeconomic Effect: How the Citizens of Greece are Effected
Poverty, unemployment, and deep inflation are threatening lives, stable or not, in Greece
today. Lucy Rodgers and Nassos Stylianou reviewed the poverty and unemployment in Greece
and compared its recession to the Great Depression in their article “How Bad are Things for the
People of Greece?”. According to their studies, in the five years from 2008 to 2013, Greeks
became on average 40% poorer, according to data from the country's statistical agency analysed
by Reuters. As well as job losses and wage cuts, the decline can also be explained by steep cuts
in workers' compensation and social benefits (2015). The depth of the Greek recession can be
observed in Figure 1. With the decline in Greece’s GDP, a decline of job opportunities also
came.

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Fig. 1. Although Greece’s recession is not as devastating as the Great Depression, it has lasted
longer and left more people at risk of unemployment and/or in poverty.
As I have family in Greece, this issue really hits home with me. I have relatives that do
not know when they will be able to work next or if they will be able to pay the rent. I am lucky
that my family sought out greater opportunities in the United States of America. If my
grandparents were not farmers, half of my family members living in Greece would be starving. If
people I know are going through such rough times, imagine the rest of the country. The
government of Greece needs to act now to save it’s people. I believe that if the change needed
does not occur in the near future, we could see people attempt overthrow the government, just as
they have in countries live Syria.
Conclusion

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It remains unclear whether or not there will be a brighter future for Greece. Greece has
become more unsustainable, as a country, over the past decade. A country can not remain
supported, bankruptcy after bankruptcy, only by the bail outs provided by other countries.
Greece is still struggling to pay off its debts from nearly a century ago. Combine that with
decades of failed attempts to refinance the country and five bankruptcies, and you have a major
economic crisis; not only with the country itself, but also with the people of Greece. In my
examination of Greece’s predicament, I focused on the key factors that have led such a country
into a deep deficit, weakening the labor force and increasing the poverty rate. The country’s
financial history has not been the best, with debts dating back to over a century ago. In addition,
Greece’s decision to abandon its currency and join the Eurozone in 2002 disabled the country’s
control of its money flow, and has strained the monetary security of other Eurozone members,
such as Italy, France, and Spain. Other Eurozone countries, particularly Germany, have greatly
attempted to pull Greece out of its troubles. In the end, Greece has to take matters into it’s own
hands to fix the country’s infrastructure.

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References
Åslund, A. (2010). The Last Shall Be the First: The East European Financial Crisis, 2008-10.
Washington, DC: Peterson Institute for International Economics.
Elliot, L. (2015, September 20). Greece: The Election Is Over, the Economic Crisis Is Not.
Retrieved December 5, 2015, from
http://www.theguardian.com/world/2015/sep/20/greece-the-election-is-over-the-
economic-crisis-is-not
Koliopoulos, G., Veremis, T., & Wiley InterScience (Online service). (2010). Modern Greece: A
History Since 1821. Chichester, U.K: Wiley-Blackwell.
Lachman, D. (2015, June 25). Economic crisis: The global impact of a Greek default. Retrieved
December 11, 2015, from
https://www.aei.org/publication/economic-crisis-the-global-impact-of-a-greek-default/
Lynn, M. (2010). Bust: Greece, the Euro, and the Sovereign Debt Crisis. Chichester: John Wiley
& Sons.
Rodgers, L., & Stylianou, N. (2015, July 16). How bad are things for the people of Greece? -
BBC News. Retrieved December 11, 2015, from
http://www.bbc.com/news/world-europe-33507802
Smale, A. (2015, July 17). Germany Votes to Move Ahead With Greek Bailout, but Opposition
Grows. Retrieved December 5, 2015, from
http://www.nytimes.com/2015/07/18/world/europe/germany-greece-bailout-talks.
Smith, H. (2015, September 23). New Alexis Tsipras-led Greek Government Takes Power.
Retrieved December 5, 2015, from

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http://www.theguardian.com/world/2015/sep/23/new-alexis-tsipras-led-greek-governmen
t-takes-power
Staab, A. (2008). The European Union explained: Institutions, Actors, Global Impact.
Bloomington: Indiana University Press.