PER 2015
Countries sharing the same currency in the EU share the same Monetary Policy that is implemented by the ECB 70 , therefore if one country has problem with their monetary policy, the problem spreads to the other countries sharing the currency. If a country needs financial support, in order to receive money it must come from another place within the EU. If real interest rates rose in one EU member state, as the inflation rate decreased, that country would not have a national nominal interest rate that their Central Bank can alter. The ECB has control of the Eurozone interest rates and if interest rates needed to be altered, it would be done through the ECB. However, each EU member state have their own fiscal policy, allowing their government to influence Aggregate demand in the economy through changes in government spending and taxation. If one member state experienced inflationary pressures, this would be experienced with every other member state sharing that currency. Through allowing countries like Greece to decide how much to borrow and spend, caused over-spending and fuelled large deficits within those countries, putting inflationary pressure on the euro. The falsified economic statistics Greece had when entering the EU, made the level of dislike they received, even greater. It is argued that Greece is to blame for the crisis and they shouldn’t have been able to enter the EU, some people are saying Greece “cheated” in entering the EU. However, the weak economic activity, in Greece, before entering the EU, isn’t just to blame. The property bubble burst in America that caused a shortage in credit is what put a fault on the borrowing made by countries like Greece, which were using borrowed money to pay back their debt. Overall, by allowing member states like Greece to borrow at a rate they did, gave them the incentive to spend more and promise big chances in their economy not thinking about future economic problems. As the recession came about, these states weren’t equipped to deal with the deficit and debt levels due to the absence of borrowing that previously allowed them to pay off debt. The rest of the EU suffered as a result, contributing to bailing-out these states and trying to stabilise the Eurozone. If Greece left the EU, they would default on their debt and end up being shut out of international currency markets. To tackle their deficit they would, most likely, end up printing money which would lead to inflation, making it hard for people to afford goods as incomes are still low and unemployment is more than 20%. The benefits would be an increase in productivity due to the access to labour. Greece can also control their own monetary policy. If Greece left, countries like Italy, Spain and Portugal, who are being effected by the crisis, will think they would be better off with their own currencies. This will put a halt on capital exchange from richer countries to poorer countries, meaning richer countries will miss out on the greater returns on investment and will loose the current investment they have made if these countries default. It is, therefore, countries like Greece that contributed to the crisis, because they were not putting into account future economic problems that could arise in the EU. It is only fair that they bear the brunt for the problems they caused in the crisis. However, in order for the EU to progress, the countries like Greece must be helped back onto their feet.
70 European Central Bank, responsible for the monetary system within the European Union.
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