“Greece is a developed country by most meaningful metrics. However, its well-documented financial struggles in the last decade have caused doubt in some quarters: Things became so bad in 2013 that index provider MCSI downgraded Greece from a developed economy to an emerging market economy.”
After the birth of currency Euro, it rose from 80 cents to 1.60 to a dollar. However, this tended to produce deflation, not inflation as imported prices fell putting pressure on domestic manufacturers and tourism became expensive thereby reducing earnings from tourism etc. and reducing sales. Deflation also increases the value of govt debt. To service the debt that doubled, they also then began to raise taxes more aggressively and this then was much like strip-mining the economy.
Germany benefited from the Euro because they were manufacturing products and selling them into Europe and did not have to worry about currency fluctuations. The movement of creating a euro was to eliminate currency risk so the German manufacturers could sell their products throughout Europe.
Greece’s top three main industries are tourism, shipping, and industrial products. By joining the Euro, Greece lost the attraction of a cheap holiday for tourists and shipping prices rose. Greece is nowhere near attaining those manufacturing characteristics, and is often one of the smallest in this regard compared to Germany, Japan, and China. However, the Greek-owned fleet of ships remains where it has been for a very long time, at the TOP of the global ranking of shipowning nations. Joining the Eurozone has hurt Greek shipping increasing its cost and opening the door to competition. China is moving upwards rapidly in shipping, and potentially could overtake both Greece and Japan (the second largest) to become number one shipowner within a decade. Greece has not benefited from joining the Eurozone and this has been the greatest myth which has hurt the Greek people tremendously.
European tourism began to move outside the Eurozone for vacations because it was cheaper. Greece has an economy with a public sector accounting for about 40% of GDP and with per capita GDP about two-thirds that of the leading Eurozone economies, this has contributed greatly to its debt crisis. Tourism provides 18% of GDP, so joining the Euro was a complete disaster for tourism and when the government is 40% of GDP and produces nothing to export, the debt crisis simply escalates. A country which relinquishes its right to print its own currency can default. As Martin Armstrong writes “The likelihood of Greece have to exit the Eurozone is growing tremendously by the day”.
who thought a day will come when a developed economy will default on its debt?
Another good article highlighting problems in euro zone.. This could trigger series of country defaults and a shift from eur to usd.
I find all your articles interesting and insightful. Thanks for sharing your wisdom through this platform.
Keep writing…!!!!!