GREXIT

Aakriti Rana

European Union worth the confinement?

Europeans before the formation of the European Union did what they were best at, Wars. The

wide bloodshed in the continent led to the Maastricht Treaty, resulting in the formation of

the union. EU was formed to promote peace and increase trade between the member

countries by removing trade tariffs, thus helping them to prosper. Even after the trade barriers

were removed and all countries were working cooperatively, the major problem was the

different currencies being used. "Euro", solved the problem faced in the early 1990’s when 11

countries adopted one single currency which made the trade easier, boosting the economies. 

However, its economic implications were not realised by then. This common currency has

created problems for various economies lying in the Eurozone. If one country prospers, other

benefits, but if one falters, other countries suffer. This was very evidently seen during the

Greek financial crisis which has continued till now. 

Nigel Forage, the one responsible for Britain’s exit from the EU, suggested that an inefficient

organisation as the European Union itself should not hold Britain into confinement. Britain

being one of the more developed nations in the EU ended up spending more on less

developed and financially weaker countries of the EU. The Conservative party, supporting

the same believes that exiting EU will be better for the growth and would encourage a more

independent working of the country.

Greek financial crisis

Greek financial crisis started in the early 1940’s after the country suffered a civil war. It has

been in a debt crisis ever since. EU accepted Greece into the Eurozone in the 2000’s, which

led to it developing some close ties with stronger economies like France and Germany. The

debt problem may have been temporarily reduced with the richer countries of EU lending to

Greece, however it was being ignorant of the fact that its economy was much weaker for it to

surpass that state on its own. 

During the financial crises of 2007-08 many European countries including Greece,

approached Germany, most responsible in terms of monetary spendings. Germany agreed to

pay Greece’s debts but only by implementing the austerity measures (No country welcomes

austerity as it cuts down their spendings, thus leading to poorer public facilities and benefits

for the citizens, usually resulting in political unrest in the country).

With the slowing down of Greece's two largest sectors, i.e, merchant shipping and tourism,

the debt crisis even worsened. There was not much increase in GDP in the past years, because

of which it was unable to cope up with its financial difficulties.

In addition to all this, there are a few more reasons which could be responsible for the crisis.

 The pension scheme of Greece is very inefficient. About 17.5% of the GDP was

allocated to this scheme. The benefits provided to the public was also better than any

other EU country, thus more spendings by the government.

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 Moreover, Greeks are likely to retire sooner and have a longer pension period, thus

increasing the government spendings on them. Another reason for unemployment in

the country is the unwillingness of the youth to work under others (and rather be their

own bosses).

 Greece has not been efficient in collecting its taxes in the past. Unlike other countries

like Germany, Greece does not have a responsible financial setting. It does not receive

the total amount of intended taxes from its citizens due to the extensive tax evasions.

This has also created a problem, where the country cannot collect enough money due

to its own sluggish financial system and has to depend on outside borrowings for its

spendings.

The Greek government is trying to control the underground economy. Greece is in talks with

the Swiss banks to reveal adequate information about their clients, to help them reduce the

tax defaulters of Greece.

 According to Transparency Internationals corruption perception Index, Greece has

been ranked as the most corrupt country in Europe. One of the bailout conditions

imposed on the Greek government by the EU, was to implement an anti-corruption

strategy. This was one of the biggest reasons for the wide social unrest in the country

and people protested on the roads against their own government.

The reducing GDP and government earnings while increasing expenditures led to the debt

crisis. There were widespread protests which happened way too often in Greece, relating to

high taxes, low pension schemes, fewer benefits for differently abled and the corruption

prevalent within the government.

 China sees the current situation of Greece as an opportunity - Chinese companies

have seen the Greek depression as an opportunity for investment and have already

entered Greece. Greece has become a gateway for Chinese firms to enter other

European Union members in the future. “The Greek economy is thirsty for

investments, and the presence of Chinese companies is important and we welcome it,”

Greek Prime Minister Alexis Tsipras said.

Bailouts and Greece's response to the crisis

With the ongoing debt crisis of Greece and then the worsening of its situation due to the 2007

financial crisis, Greece had to be bailed out of its debt trap. Initially, the European banks had

holdings of Greek debts, but this shifted when "Troika" (European Central bank, IMF and

European countries sponsored fund, i.e, the European Commission) purchased Greek bonds.

Greece has been bailed out thrice by the EU, increasing its dependency on it while decreasing

EU's trust on Greece's financial setting.

Germany, during the time of financial crisis, decided to lend more money to poor countries

like Greece but only under austerity measures. This made Greece reduce its government's

spendings by a huge amount and increase its tax rates. The increase in tax rates led to social

unrest in the country, people started protesting against the corrupt government and the poor

public facilities due to the cuts. 

Is exiting the Euro zone a good idea for Greece?

It all depends on Greece's situation. With its increasing dependency on EU and yet another

bail which happened in August 2018, it may not be able to do so. A referendum, held in 2015,

asked people whether they want the government to take more money for higher austerity.

Majority said no, however, the country needed more money, and with money came the

austerity measures. Resulting in higher taxes, fewer spendings, poorer conditions and grudges

against the government. 

In a country like Greece with a big "black market" or "underground economy", it is difficult

to cope up with the rampant tax evasions. Many blame the tax evasions on the high taxes

being imposed by the government. The slowdown in the two major sectors, i.e., tourism and

merchant shipping, had also led to the opening up of the underground economy.

Citizens are angry with the government and the corruption level prevalent. There is huge

unemployment in the country, even the well to do families are finding it difficult to manage

themselves. The number of homeless has increased by more than 25%, more unemployed

youth are on the roads. Moreover, with the increased immigration in Europe, industries in

Greece are hiring immigrants more than its own citizens due to the cheap labour they provide.

Due to austerity measures, the government spendings have been decreasing continuously and

so is the social standard. In any other country, the government would have printed more

money, reducing the value of its currency. This makes its goods attractive for exports and the

country attractive for tourism. Countries like Canada and Venezuela had prospered after they

devalued their currency and made their country cheaper, thus improving its trade. However,

Greece being a part of EU cannot be allowed to do so.

Putting into perspective

What will happen if Greece exits EU

 Domestic currency, Drachma, will be re-introduced immediately and its value will

drop drastically. Greece’s exports and tourism will become cheaper and there will be

more job opportunities. This, however, may lead to inflation.

 Increase in the interest rates may have some interesting implications. Introduction

of Drachma and the high inflation, can be curbed with higher interest rates, thus a

possible improvement in the country’s current condition. With increased foreign

investments and lower domestic spendings, country may see a growth from there.

 Leaving EU will free the country from the austerity measures and EU’s fiscal policies

imposed on it. This might even clear out the black market in the country to some

extent and even lessen tax evasions because of reduced taxes. Therefore, this will give

Greece an opportunity to function independently and work in a manner best suitable

for its own economy.

Grexit maybe a trial period for the government but the citizens will feel the brunt of poor

working conditions. Greece will face problems in paying back its debt to other countries as its

currency value will be very low initially. The job and traveling opportunities to Greeks in the

rest of Eurozone will be taken away from them, thus the youth may not be in favour of the

country leaving EU. Even though, Grexit may look a little attractive for the government to

free themselves of the policies imposed on the country, but it's after effects cannot be estimated now. The condition may improve or even worsen thereafter.

Considering the corruption and poor fiscal policies, leaving EU may not be a good idea for

the country. With the current financial setting of Greece, it seems to give a greater strain to

other countries in the Eurozone. Due to its terrible financial system, countries like Germany

and France have to suffer. This was one of the reasons why the UK decided to leave and not

cater to other weaker economies which acts as a hindrance for their economic growth.

Staying in EU may be the best choice with Greece at the moment, even though the public

may think otherwise. Only a well-planned exit can make Grexit a success. Greece will have

to go through a state of drastic economic downfall, but eventually may prosper

independently.