The Greek Debt Crisis is an ongoing foreign crisis occurring in the European Union. This sovereign debt crisis has occured due to the sudden increase in employment, minimum wage and economy in such a short time, that the government was unable to support the quantity of produce and trade in the system, leading to economic downturn. As a part of the European Union (EU), it became this organization's job to manage the debt crisis. In this research paper, we will look at the effects of the current Greece Debt crisis towards the economic stability of the European Union.
Greece’s debt crisis has affected the EU’s stability by causing millions of workers to lose their jobs, resulting in Greece becoming unable to complete their demand of goods and exports, resulting in a shortage of goods for the entire EU. This happened because of greece’s action to reduce the expenditures1 on salaries and pensions for workers in order to save money. Due to the Expenditure decreasing from 25.2 billion euros (2010) to 20 Billion euros (2014), about 100 000 companies went bankrupt, and Greeks have lost an average of 30% of their income(EIßEL). Greece now has around 500,000 families without any labour income. Unemployment has exploded from 8.6% (2007) to 26.5%(2016), and about one million people have lost their jobs (Eurostat). The close connections of countries in the EU is a breeding ground for a devastating Domino Effect; the lack of goods being exported from Greece not only causes instability in Greece, but also in recipient countries that need the goods. These countries2 use the received goods for their own economy and for producing other goods; if those countries don’t receive the goods they need, their economy crashes as they can not provide their demand. This will in turn affect another country’s economy that trades with the previous fallen economy, and so everyone will be affected devastatingly. The Debt Crisis also led to the cutbacks on health and medical programs, leading to a drastic impact on the people. The infant mortality rate rose by 40%; the number of suicides in Greece increased by 45.4%. HIV infections increased by 54% (EIßEL). The reduction in expenditures led to the government to make a reckless decision resulting in hygienic issues, a sharp change in its core-periphery3 status in the world, creating a “stigma4” in the EU, limiting trade and placing embargos on a country that is already in an economic crisis. Overall, the risk of cutting down costs in order to preserve money proved to be inefficient, making the EU even more unstable.
Another way that greece’s debt crisis has affected the EU’s stability is by ensuring a continuous loop of debt between Greece and the EU, making it worse than the original debt crisis. This has happened because of the excess bailouts5 by EU countries that greece has been unable to pay. In 2010, the EU received 100 Billion euros as a loan. In 2012, the EU received a second bailout of 130 billion, and finally the EU received a third bailout in 2015 of 86 billion.(BBC) The Greek Economy owes more than 180% of its gdp6 to the European Union. Just to pay off the current debt, it will take 60 years. (BBC) This inherently causes a loop of debt between the EU and Greece. Because the debt is more than the gdp, the country will never actually be able to repay any of their debt on their own. The bailouts have actually put Greece in more debt, but also dragged the EU along with it. Now due to an increased amount of debt in circulation in Greece’s economy, other EU countries who gave the loans now will never get their money back, and over 360 Billions dollars of debt will be looming over Greece, as well as the EU. This had led to a endless game of tag; greece repays debt by borrowing money from another source, which then will put greece in more debt, putting even more weight on the EU. The Debt Crisis also ensured a continued loop of debt due to the investment of banks across Europe. This is due to the EU banks buying a large quantity of greek government bonds7 , relying heavily on the greece’s economic growth, while Greece depends on the bank paying off the debt. In total, banks have invested more than 722 billion euros in the Greek Economy as a desperate attempt to help the dying country (Wallace). However, the opposite happened in Greece’s scenario. Due to the influx in money being loaned, yet the gross domestic product of greece remaining less than the annual debt, Greece was digging a hole for themselves. The cycle of endless debt now also affected Banks all around Europe affecting a wider range of economic sectors and industries. This severely impacted businesses and investors throughout the world. Because of these two outcomes of the Greece Debt Crisis, the European Union is suffering through a recession, which is repelling foreign investment, and rapidly causing economic instability in the EU.
Finally, the Greek Debt Crisis has caused instability in the European Union by entrenching inequality in countries trading with and/or interacting with greece. This is caused due to the hierarchical diffusion of money, or how money is allocated. This is best explained by the work of Geoffrey M. Hodgson and his work in conceptualizing capitalism8. His studies and life-long examination of modern economics has shown how capitalism entrenches societal inequality. The misinterpretation of the trickle down theory9 implemented in capitalism causes different levels of free market and trade between the “classes”, with the free market and laws favoring the rich, as emperics prove from countries such as the United States and other Core countries. The severe hierarchy of wages and cash flow causes the bottom to be marginalized and otherized. This theory also applies to the current conditions of Greece and the EU loaner countries. Hodgson also analyzed that when you contract the amount of money in the economic system (i.e. the debt crisis that is occuring in greece), the hierarchy of capitalist systems ensure that the rich maintain the same amount of money they previously had, draining money from the poor and marginalized, entrenching inequality and poverty until the money is squeezed out from the bottom and full on the top, like a “sponge effect”. This has already been evident, as the percentage of people in poverty jumped to 13.2% from 6% in 2010 (Bitzenis). This has a detrimental effect on the stability of the EU. As the money keeps on getting squeezed, rich keep on getting richer, while everyone else is squeezed dry till poverty reaches them. This affects loaner countries in the EU also, since they have reduced expenditures in order to loan Greece money, and thus inequality is gradually on the increase in those countries. This capitalist perspective is causing stigma towards the EU as well as a decrease in investments and interactions, all because of one country that is only 50 thousand square miles. This ongoing Debt Crisis seems to be un-ending, and unless a stable solution arrives, the european Union will face dire consequences.
Work Cited
Bitzenis, Aristidis, 2014 “Reflections on the Greek Sovereign Debt Crisis : The EU Institutional Framework, Economic Adjustment in an Extensive Shadow Economy”
http://search.ebscohost.com/login.aspx?direct=true&db=ulh&AN=62249147&site=ehost-live
DIETER EIßEL. “The Financial Crisis, Austerity Policy and Greece” Ebsco host 2015
http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=111870008&site=ehost-live
Eurostat- Your Key to European Statistics.”
http://ec.europa.eu/eurostat
Geoffrey M. Hodgson How Capitalism Actually Generates More Inequality.” Evonomics, 3 Sept. 2016, http://www.evonomics.com/how-capitalism-actually-generates-more-inequality/
Reality Check: Have the Greek Bailouts Worked?” BBC News, BBC, 15 June 2017, www.bbc.com/news/world-europe-40288065.
Wallace, Tim. “The Doom Loop Is Back: Europe's Banks Are Still Buying More of Their Own Governments' Debts.” The Telegraph, Telegraph Media Group, 21 June 2016,
www.telegraph.co.uk/business/2016/06/21/the-doom-loop-is-back-europes-banks-are-still-buying-more-of-the/.