What do you not know about the Greek economy?: 2001 Greece Joining the Eurozone

In 2001, Greece officially adopted the Euro as its single currency. As the Greek government at that moment was suffered from soaring inflation and excessive debt, they chose to join the Eurozone in order to catch up with the economic situations in most other European countries.[1] After being a part of the Eurozone, Greece undoubtedly gained a number of benefits. For example, building up strong affiliation with European countries which in turn receiving economic and political aids, strengthening the power in negotiation[2], having more business opportunities with foreign countries as same currency was used with EU.[3] It seemed that joining the Eurozone did no harm to Greece. However, it is not the truth.

Since 2001, due to the adoption of single currency with other Eurozone countries, Greece spent more and more on the public, especially the public sector wages[4], which in turn caused an increase in the government borrowing, making the country unable to pay the debt when the economic tsunami swept the globe.[5] The situation worsened when Athens became the host of Olympics Games in 2004,and tax evasion exists in Greece. According to some governmental data, Greece’s GDP has shrunk every year since 2008, with the biggest drop of 9% in 2011. The Greeks’ living standard is adversely affected with total unemployment of over 25%.[6]

Facing a tremendous challenge of economic downturn, the Greek government would not withdraw from the Eurozone. Greece is now running out of money. If Greece leave the Eurozone, the government would not be able to borrow money from the European countries. That means they would not be able to repay the debt. Also, the banks in Greece would collapse because the Greek would rapidly withdraw their savings out of their account and the re-introduction of Drachma will dramatically rise[7], which must send shockwaves to the whole Greek economy. However, it may do good to Greece in the long run when Greece chooses to exit the Eurozone as the drachma- the previous currency of Greece- may allow Greece to has more control on monetary and trade policy.[8]

The formation of new left-wing government implies a very high probability of Greece exiting from the Eurozone. Whether they will abandon the euro is just a matter of time, however, this moment is possibly not a right time.

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