The EU in International Affairs: How will Greece bailout affect the European Union - Essay Example

Introduction European Union is widely referred as the EU. It is a unique partnership between twenty-eight countries. The partnership involved is economic and political one. It was created after the end of world war two to foster economic cooperation (Richardson, 2015:440). Economic cooperation will be enhanced through trade; each country in the EU interacting with another, this interaction through trade will enable the countries to avoid conflicts. It is based on the rule of law whereby all the activities it does are well stipulated on treaties and democratically agreed by all the member states. European Union has institutions and bodies that helps it to function effectively. It has its own parliament, court of justice, court of auditors, which are involved in law making, the central bank, which is responsible for European monetary policy, the Committee of the Regions, European Investment Bank, which finances small business and EU projects among other bodies and institution (European Union, 2010:21). Reasons why Greece has to leave the Euro Lagged growth, the economy of this country has reduced at a high rate of twenty seven percent after the crisis in 2007. This led to a recession period and affected Euro greatly and melted down the economy. This has lead to the great depression, and has made the gross Domestic Product to stagnate (European Union, 2006:44). This crisis has lead to a decline in the economy and due to this, it will take Greece thirteen years to get back to its pre-crisis boom. This has made it to withdraw from the European Union, as its growth rate cannot be at par with the union growth rate. Increase in debt, the public debt of Greece is very high and largest in the euro area; this has forced it to undergo growth-curbing austerity. The increased debt is among the reasons why Greece withdraws from EU, this is because it is not in a position to repay its debt, unless debt relief is granted to it, it cannot continue to be viable as a member in the European Union (Maltritz & Berlemann, 2013:127). Europe’s north/ south divide, the division between north and south region are increasing creating more problems. This division started during the onset of the crisis. The southern debtor nations are trying to reduce their debt burden while the northern creditors are running deficits to ease this pain. This forces Greece to be unfit with the European Union (Kidner, et al 2008:93). Growth of exports is low, despite that the trade balance is improving, the exports are still low. Trade balance is improving because Greece has reduced imports. Greece is in the EU, which does not allow a member to it to devalue the currency, which can help it industries to become competitive undergoes a hard and painful process of internal devaluation (Kidner, et al 2008:435). Due to this restriction it is therefore advisable that Greece should leave the union to have freedom in currency valuation. Job destruction, this is in relation to the rate of unemployment levels, Greece continues to have the highest rate of unemployment, whereby many people are jobless approximately to twenty seven percent of the population in a single currency area. One of the sectors that have played a negative role of unemployment is the public sector that has shrunk leading many people to be jobless (Kidner, et al 2008:615). This factor also disadvantages Greece to be in the European Union. Emigration is also a factor; many young and skilled people have migrated from Greece to other countries like Germany and United Kingdom. The emigration is to fill the jobs across the EU. Young people are regarded as vital and crucial to the development of every nation; their migration makes a country lose labour and skill, which could be cheap. This factor also disadvantages the Greece (Ciriaci, 2014:55). Unfavourable business climate, suitable business climate is one of the key things for the growth of any country. Greece is coupled with an unfavourable business climate, which includes high cost of energy, stifling regulation and tax burdens which are crippling this holds back entrepreneurs within Greece country (Tocci, 2014:91). This makes Greece unpleasant to attract investors and therefore an adverse effect to the country's economy. This also forces Greece to leave the European Union. Politics of austerity, this has been facilitated by economic turmoil in the country which led to emergency of radical political elements. This factor creates an unfavourable climate to boost growth and investment, this reduces aggregate demand of a country. This also forces Greece to withdraw from the (EU Pisani-Ferry, 2013:88). Positive and negative effects of Greece leaving the European Union It will lead to an end of a single currency, in the positive side of it the Euro, which is the dominating currency, will be under competition due to the introduction of other currencies. On the negative side of Greece withdrawal, it will lead to devaluation of the Euro. The exit of Greece also called Grexit will leave billion of dollars of debt being held by the Central Bank of European Union. Devaluation of the euro will make investors to migrate to safer countries; this greatly affects euro and the states in the European Union (Maltritz & Berlemann, 2013:69). Cash flow problem and deflationary spiral, this problem of cash flow and deflationary is created due to fears created by Greece exit, making Europeans to rush in banks and withdraw their savings (Eichler, 2011:43). This fear has reduced consumer prices and international investors are motivated to liquidate their assets. This poses a negative effect. On the positive side of it there is a likelihood that other countries may join Greece in leaving euro leading to a meaningful risk. It will also affect EU account and also the global economy negatively, this will as a result of EU contributing 1/5 of world trade. The fall in EU account will have a proportional fall in the world economy and also disruption of European Monetary Union. This factor affects the whole EU and the world (Maltritz & Berlemann, 2013:57). How withdraw of Greece from EU will affect it The only positive effect of Greece to leave the European market is to devalue its new currency. Withdrawal of Greece in the European Union will enable it to devalue its currency and become competitive (Ranstorp and Wilkinson, 2013:55). It will also be in a position to undergo more desirable structural forms. This is just one benefit which will advantage the country. Closing of banks, the banks will be closed due to prolonged holiday. This holiday is created by the massive bank run and there is likelihood that banks will collapse (Tocci, 2014:68). Due to the fear created, everybody will run to banks and withdraw their savings. This withdraws created a negative effect of bank's closure in the Greece. Fall in exchange rate, when the new currency is introduced, especially when there is high crisis in finance the exchange rate is expected to fall very fast. This will also be accompanied by a vicious depreciation inflationary cycle. Due to this excessive depreciation, high rate of inflation will be experienced, which can lead to hyperinflation (Maltritz & Berlemann, 2013:4). This affects Greece negatively. The currency mismatch will be experienced in the Greek economy, companies in the Greek economy will face the problem of currency mismatch, which may lead these companies to bankruptcy (Beers, 2010:30). Output levels in the country will fall and increase in the rate of unemployment will be experienced. These have a negative effect from the Greece withdrawing from the European Union. In conclusion, the exit of Greece will affect other country as it can cause global liquidity freeze, which would affect the banking sector at first, then the effect would spread to bond markets. The effect will also extend to global trade. These factors listed above will have an adverse effect on the banking system, bond market and trade that will slow down. Therefore, their withdrawal will not only affect it only, but also the entire world. Bibliography BEERS, M. & RAFLIK, J. (2010). 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