Global Education

Greece brings down the Euro to $1.33

By Nahuel Fefer
Published: April 2010

At a European Union summit in Brussels on Thursday, March 25, Angela Merkel, the German Chancellor, announced the European Union’s policy regarding a bailout of Greece.

Throughout late 2009, the Greek economy deteriorated as the government became  caught up in a number of scandals involving their economic situation.

In hopes of legitimizing his administration, conservative leader Costas Karamanlis called for an unplanned election two years before another election was required to take place according to Greek law. However Karamanlis’ move backfired and propelled the opposition, the socialist party, into power.

Soon after coming into power, the new administration announced that the budget deficit was twice what had been previously reported.

Immediately, almost all credit bureaus downgraded Greece’s sovereign credit rating, an evaluation of a potential borrower’s ability to repay debt, significantly.

This hurt the Greek economy even more and prompted international criticism of the Greek economic system.

In an international economy, one nation’s economic woes causes negative impacts internationally.

However, the spillover from Greece’s economic crisis to other members of the European Union was even greater because of their integrated economic system and use of the Euro.

Since November, when the real budget numbers were released, the Euro’s conversion value to the American dollar dropped from $1.51 to $1.33.

Greece’s economic collapse was not the sole reason for this huge decline.

Much of the decline results from uncertainty about a safety net for European nations belonging to the European Union.

Spain, Ireland and Portugal all have economies that resemble the Greek economy before it crashed, and their credit has also suffered.

The European economic situation makes to Chancellor Merkel’s announcement about a possible bailout in Greece even more pressing.

The European Union has yet to bail out a country using the Euro and the conditions of the bailout cut a fine line.

Although it ensures the availability of a bailout, Merkel emphasized that this bailout would only kick in as a last resort if the stability of the Euro was threatened or if Greece runs out of options.

Furthermore, one of the bailout’s conditions ensures that the International Monetary Fund must be involved.

Many nations, however, are wary of aid from the IMF as the organization often attempts to restructure the economies it tries to help.

Some nations are so wary of their help that they have taken the IMF’s money and then ignored all recommendations from the organization.

An issue of pride has also arisen. “If the only answer from Europe is to ask the IMF to help us then we are really, really, really poor, the leader of the European socialist party, who is currently in control of Greece and Spain said.

Merkel wants to get involved because of the IMF’s disapproval. By adding conditions to the bailout, Merkel tries to prevent any future bailouts.

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