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How the Euro caused the Greek Crisis

Greece is in a state of economic and financial crisis that’s dominated global headlines this week. Vox’s Matt Yglesias explains the real roots of the crisis.

As an economic policy,the Eurozone, is an idea with some serious flaws. The Eurozone is not what economists call an optimal currency area — its economies are too big and disparate.

One way this flaw plays out is that Europe has very limited labor mobility compared to, say, the United States. If the economy is strong in the Netherlands but weak in Spain, it’s difficult for Spanish people to simply move to Amsterdam where they don’t speak Dutch. European countries maintain separate welfare states, and have very different average living standards. Consequently, economic conditions can be very different in one part of the Eurozone than in another, making it difficult for the ECB to create policy that is appropriate everywhere.

The political meaning of the Eurozone and the European Project differs a bit from place to place. To France and Germany, it means the end of war. To Ireland, it means independence from the United Kingdom. To Finland and Latvia and other eastern states, it means independence from the Russian sphere of influence. For Spain and Portugal, it means the end of dictatorship and integration into the realm of democracies. For Greece, it means (unlike Turkey) certification as a real European country.

Source: Vox. Related :

  • Greek government-debt crisis
  • Greek withdrawal from the eurozone

  • The Euro Intercepts : WikiLeaks
  • Absolutely everything you need to know about Greece’s bailout crisis
  • The Greek Government’s Final Proposal to its Eurozone partners

    According to Greek Journals, Greece proposes to restructure its debt through refinancing with new tools. The Greek plan made by the Greek EU-counterparty filed last week in talks that had with lenders.

    According to this source, the Greek plan was drawn up on the basis that the debt of 175% of GDP is unsustainable. The Greek government propose the interconnection of the loan rate by the GDP growth rate and the deletion of 50% of the total nominal value of bonds of the European Financial Stabilisation Mechanism.

    The first part of the proposal concerns the bonds issued under the first loan agreement in May 2010 and amounted to 52.9 bn. Euros. Athens proposes the conversion of these loans into perpetual bond with a rate of 2% to 2.5%. Alternatively propose the extension of these loans for 100 years.

    The second part of the Greek proposal concerns of EFSF loans to be followed by the ESM 2013 and amounted to 141 bn. Euro. In this case there is no possibility of changing the interest rate. The Greece therefore proposes to separate the obligations of Greece so that half of the bonds pay an interest rate of 5% and the rest into a series of zero-rate bonds, which would repay 50% of debt at maturity.