Laura Weiderhaft Embassy Project International Relations Seminar November 11, 2011 Economic Officer – Greek Economic Crisis When the European Union created a monetary union with the introduction of the Euro, it did not foresee the problems that have arisen in the past two years. Greece, a traditionally small and weak economy, was propped up by a strong European currency. The strong Euro, paired with low interest rates allowed Greece to borrow money easily and spend incessantly over the past two decades, racking up unsustainable amounts of public debt. The massive Greek debt and its ramifications have reversed the European climb out of the 2008 world recession, triggering another European recession which could have far-reaching implications for the remainder of this year and the years to come. After more than a decade of unbridled spending, Greece has amassed a public debt of close to $500 billion, which amounts to 142.8% of Greece’s Gross Domestic Product. This level of debt is considered unsustainable, and because investors are unwilling to purchase Greek sovereign bonds when Greece already has unsustainable debt levels, Greece had no source of funds. States under these circumstances typically default on their debt, but since Greece shares its currency with 16 other European states, this option is impossible for Greece. Greece is also unable to control the money market to help manage its debt, since the ECB controls all of the monetary tools in the Eurozone. In order to avoid default, the Eurozone—lead by Germany and France—organized multiple bailout packages, which together total more than $300 billion.
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