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GreeceвЂ™s Membership in the Eurozone Contributes to the Crisis Smart investors would have learned not to take government statistics or public pronouncements at face value smart investors do their own research and trust their own instincts about a situation. Investors allowed the strong economic upswing and convergence of the Greek economy with its Eurozone partners to distract them from closer scrutiny of GreeceвЂ™s fundamental financial and economic problems. Real GDP contracted by approximately one-fourth between 20. Three bailouts, totaling EUR246 billion, coupled with draconian austerity measures, partially stabilized the situation but at a tremendous human cost in terms of generating chronically high unemployment, widespread poverty, and plummeting incomes. Greece was, in short, unable to implement its own monetary policy to match its fiscal and political needs. Handcuffed by the European Central Bank (ECB), however, Greece was unable to reduce interest rates or devalue its currency to stimulate economic growth. Yet, in the years leading up to the global financial crisis, the Greek government itself chose to binge on increased spending, bringing about a significant increase in the budget deficit and overall government debt levels.ДЄs GreeceвЂ™s fiscal deficits surged in 2008вЂ“2010, interest rates on government and private debt in Greece shot up significantly. The private-sector credit bubble that emerged was one symptom of unsustainable growth.

Low interest rates fueled an economic boom, which was sustained also by large inflows of foreign direct investment. The Eurozone, established for political purposes as a next step on the path to closer economic and monetary union within the European Union, gave rise to a flawed economic structure, and GreeceвЂ™s inclusion in the Eurozone made GreeceвЂ™s crisis inevitable.ДЇrom the late 1990s onward, GreeceвЂ™s impending membership in the Eurozone encouraged investors to play a convergence game-buying up large amounts of Greek government debt and driving interest rates down as spreads tightened relative to core Eurozone countries. At the height of the global financial crisis in the closing months of 2009, however, investorsвЂ™ minds were distracted by the banking crisis in the rest of the world, so the spotlight was not fully focused on the specific issues in Greece. In addition, the lack of accountability and proper oversight in so many aspects of Greek public finances compounded the problems. high wage growth not supported by productivity growth, which led to a decline in GreeceвЂ™s competitiveness,.Second, GreeceвЂ™s membership in the Eurozone imposed on it an economic straitjacket that was ill suited to and inconsistent with its political and financial goals.Дespite Greece being beset by economic mismanagement and misreporting of economic performance by successive governments, investors failed to pick up or act on a growing collection of warning signs: First, Greece was undermined by government economic mismanagement, including widespread fraud and an absence of public accountability. The Greek financial crisis had two primary causes. Monetary policy was out of sync with a booming economy and easy access to credit.

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Furthermore, GreeceвЂ™s membership in the Eurozone prevented it from exercising full control over its monetary policy, which meant that interest rates were kept too low for too long relative to the inflationary pressures that were building up in the Greek economy. Its causes were largely endogenous in nature, however, because its source originated in mismanagement of the Greek economy and of government finances rather than exogenous international factors.

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The Greek financial crisis was a series of debt crises that started with the global financial crisis of 2008.

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