gE Blog Series: Exploring the Eurozone Part 5: Impacts of Potential Greek Exit

Greece needs to follow European rules if it wants aid from the Eurozone during its financial crisis. The country owes other Eurozone governments around $212 billion. Germany is owed the most money, totaling over sixty million euros, followed by France and Italy. However, Slovenia may be the most impacted country by the Greek debt crisis.  Bloomberg determined that Greece owes Slovenia over 3% of its total GDP. Greece is on the bubble of a potential exit from the European Union, and a potential default on its debt.

People fear that if the Eurozone were to bailout Greece, a country that has broken many rules, it could lead to rule breaking in other countries. Greek and German leaders met to discuss the problems Greece was going through, and the German Chancellor Angela Merkel expressed her desire for Greece to recover and regain economic strength. She explained, “We want Greece to be strong economically, we want Greece to grow and above all we want Greece to overcome its high unemployment.” Greece and Germany have had some high profile disagreements as of late, and it is hoped that this meeting will spark a restoration of the relationship.

The possibility of the Greek exit, or Grexit, has led to investor sentiment in the Eurozone. It is speculated that the Grexit would lead to a sort of domino effect, and its effects would be seen throughout the Eurozone. The euro exchange rate would drop, and it would be a fragile currency as investors wait around for more Eurozone activity as a result. Greece will have to clean up its act and prove to the rest of the Eurozone that it is ready to follow the rules and go through the necessary reforms to remain a member. If not, financial instability might plague other fragile European economies. What do you think Greece should do to ensure economic safety in the future? What actions should the European Union take?