Jonathan Goldstein

Greece Default Looming

During the “Great Recession” of '07/8/9 many banks experience failure and need help from
the government in order to stay aoat and solvent. Following massive bank bailouts and stimulus
packages to keep the economies of the developed world aoat, new problem has arisen, keeping
countries as a whole solvent. This issues is on the forefront of the minds of people all over the
world now because of a few major countries, Greece, Spain, Ireland and Portugal. These countries,
with Greece leading the pack have been in the news regarding the threat of defaulting on its debts.
Furthermore, there is a need for reassurance that Spain, Ireland and Portugal will not default and
that their debt is still good.
The main issue with Greece and to some extent with the other countries is the size of their
decit. The Eurozone mandates that the decit must be at or below 3 % of GDP. Greece's decit
reached over 10 % to roughly 13 % of GDP which is much higher than the limit allowed. This has
put much pressure on Greek debt and has forced many in the debt markets to fear a default on the
part of Greece. This would have catastrophic effects on the Greece but also many other Eurozone
countries. If Greece were to default, then Spain, Ireland and other countries with higher than the %
limit would be feared to go next pushing these countries into default potentially and further curbing
their already slow growth.
Since the news of Greece being in much trouble has surfaces, there have been solutions put
forward to help them and keep other countries from experiencing similar problems. At the G7
summit, Spain's PM, Jose Luis Rodriguez Zapatero announced a proposal for Spain to raise the
retirement age from 65 to 67. Greece has put forth similar plans to this, by reforming their tax
to raise more revenue as well as raise the average retirement age to 63 from 58. These are being
proposed in the hope that more revenue will be generated in the government to help lower the
decit in future years. A more formidable plan from the outside has been put forth involving
France, Germany and IMF(In an advisory role) The goal here is to help bailout Greece, but by
using European nations as the main source of aid, more accountability exist as well as better
options because of the understanding. France and Germany will provide funding to Greece to help

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 Jonathan Goldstein

meet its obligations should they be called in. Greece has had these issues and they have brewing
for almost a decade since joining the Eurozone which poses some questions.
The solution put forth all seem helpful and will get Greece out of trouble and keep the debt
markets reassured about other European countries. The problem, though is that all of this is in
response to an looming crisis. No one anticipated that Greece would run into this issue, yet they
had public debt of over 100 % of GDP in 2001 when the joined the EU and did little to help lower
this. This is a sure sign that a country with some uneven nances will in the future run into trouble
as we are seeing today. I liked the proposal of setting up a European Monetary Fund type institution
because it allows Europe to solve its own problems and the IMF and the United States out because
of a lack of understanding of the situation and even just the culture of these countries. Something
needs to be done and EU countries need to be held more accountable for the decits if the ECB is
going to enforce a limit. This would help eliminate further crises and possible defaults by keeping
the situation under control from the beginning. More pro-active actions need to be done in order to
help this problem and prevent others. Politics need to stay of this situation and future ones because
that will not help the situation, an unbiased approach is needed and hopefully everyone can come
to an agreement on one which will help Greece and stabilize the Eurozone and its countries.
There has been speculation of Greece possibly pulling out of the Eurozone to allow for their
own currency devaluation. While this solution would help the country, it would create a domino
affect pushing others to brink of leaving and maybe even an eventual collapse of the EU. This
cannot happen as the EU has put so much work into creating a prosperous zone both economical
and political and has become a major world power need to help balance out the United States and
the ensuing growth of China. Overall the situation is dire and Greece needs help to prevent other
detrimental events from occurring. The goal is provide a way for Greece to grow and bring their
decit without totally destroying all public institutions.