Financing Greece and European Union Economy - Article Example

 Summary One of the problem areas in the EU pertain to the financial problems of key members such as Greece, which act as a weak link to the Union and which threaten to undermine the stability of the European currency and the general economy. There is an urgent need therefore for the EU to try and respond in an effective manner to the financial crisis affecting Greece. This, even as Greece tries to come up with a solution to its problem that will not in turn cause pain and suffering to its people in the long run. A current issue has to do with the problem of the large debt pile of Greece and what to do with it. Reports are that Greece wanted to ask the European Union for the writeoff of a large part of its debt, something that the EU was difficult to swallow. This would mean the creditor nations to Greece essentially writing off a large part of its loans. It would solve the problem of the large debt of Greece crippling its ability to finance itself because of having to source funds to pay its loans, among other things. On the other hand, the writeoff of the debt undermines the EU by sullying the balance sheet of the nations who had been lending money and providing the resources to try and make the Union work financially. In the integrated economy of the EU, every economy either boosts or drains the whole Union, and the problem of Greece therefore affects all countries in the EU. The problem is urgent too, owing to the way the problem of Greece, according to the US, likewise can have a long-term negative effect not just on the EU economy but on the American economy as well (Verlaine and O’Donnell 2015). The problem is that since Greece received aid in 2010 to shore up its economy and to bail it out essentially, the Greek economy has continued to flounder, so much so that since that time the economy has shrunk by 25 percent. Financing its debt therefore continues to cripple the already hurting economy, so the Greeks thought of asking the rest of the EU to condone its debt. That being rejected, the Greeks have turned around and asked for a refinancing of its loan essentially. That entails the conversion of its current loans, some of them, into bonds that the other member EU countries can purchase, and whose value is tied to the way the Greek economy performs. This move is the alternative to condoning the debt, and can potentially save Greece from going into default on its loans to the EU and the rest of the world. Key members of the EU, such as Germany, on the other hand, continue to press for stringent measures for Greece, including trimming its budget so that it is better able to pay for its debt and to impose fiscal discipline in the way the Greeks spend and borrow money. There is also the threat of the EU withdrawing aid in making sure that the banking sector in Greece remains liquid, via the provision of standby funds to adequately serve depositor needs and prevent runs in the system (Verlaine and O’Donnell 2015). Opinion The challenge here is that Greece has been included as a key member of the EU, and must in essence act the part of a responsible member of the Union in terms of managing its own money and making sure that it is able to meet its financial obligations with its EU neighbors and the rest of the world. As the American government has mentioned, the problem of the Greeks is not solely a European matter, but is also a global matter. This is because the American economy and therefore the world economy is tied very much to the European economy in general. A weak and troubled European financial environment is therefore a contagion that can hurt the prospects of the US economy as well. On the other hand, we have a situation where, arguably, Greece will not grow up, but is instead mired with the EU in a kind of moral hazard problem, One can say that strength of the EU Central banking system is being used by the Greeks as a kind of lifeboat while not attending to its financial fitness in earnest. Because it expects to be saved by Europe, Greece seems, arguably, unable or unwilling to solve its financial problems, Put another way, it can be that because it knows that it is integrated with the rest of Europe, that Greece seems content to look at things like debt condoning and restructuring, all the while not building up the discipline and the competency to better manage its finances. If one knows that it is going to be bailed out anyway, would a country have the discipline to make sure that its economy does not tank? Greece can be likened in this way to a teenager who will not learn to live within his budget, knowing that even if the teenager fails at that, that help from rich parents is always at hand. The integration of the European economies in the union too, imply that the Union has recognized the need to respond to the problems of all EU nations. Because the problem of the Greek economy impacts the European currency in particular, the problem of the Greeks is the problem of the entire European Union (Verlaine and O’Donnell 2015). Viewed in the context of the dynamic of the Greek proposals and that of the German and other allied EU countries, the problem is one where Greece wants to get out with as little pain as possible from a financial problem that is tied to Greece not being able to live within its means and not being able to pay off its debt obligations. On the other hand, the rest of the EU seems to be forcing Greece to become more disciplined. The German proposal is for Greece basically to live with pain and to spend less, while honoring its debt obligations with the rest of the world (Verlaine and O’Donnell 2015). Taking a step back, the case of Greece can be construed in one way as a test of the resolve of the European Union to push through with the integration agenda, even in the face of some evolving difficulties with making sure that the lack of fiscal and financial discipline in some individual member states of the Union do not jeopardize the financial health of other members of the Union. The case is a test too of such issues as moral hazard, or some states may choose to lean on the expected financial bailout or help from the rest of the EU instead of taking the necessary steps, including taking on painful measures of austerity and fiscal discipline, in order to save their economies from trouble (Verlaine and O’Donnell 2015). 1 Works Cited Verlaine, Julia and Svenja O’Donnell. “Greece Said to Drop Writedown Request Amid EU Opposition” Bloomberg. 3 February 2015. Web. 3 February 2015. Read More