Will Greece Continue Its Relationship With The Euro?

For economists around the world, one of the situations that's watched most closely is the current state of the Greek economy. For nearly a year now, Greece has been going through incredibly tough times. So tough in fact, that the country has been heavily dependent on assistance from the European Central Bank in order to stay afloat. However, as politicians continue to fail with regard to striking a deal, the country is getting closer and closer to a dismissal from the Eurozone. So today, we'll talk about what we've been seeing from the Greek economy recently and whether or not the Euro is likely to continue to be the currency used by Greece.

What Caused The Greek Debt Crisis?

The situation we're seeing in Greece has become so dyer that it's received it's own name; the Greek Debt Crisis. To understand the crisis, we have to look all the way back to 2008. In 2008, the US economy came across a hard time that many blame on the issuance of sub-prime mortgages. However, the Eurozone decided that it wasn't likely to affect them, so they would not step in. Unfortunately however, the crisis hit so hard that the ripples were felt around the world; and soon became known as the worldwide economic crisis of 2008 and 2009.

During this time, the vast majority of Greek debt was held by European banks. After all, Greece is a country under the Euro and European banks figured that lending to the country would be a safe bet. Unfortunately however, they were wrong. The reality is that while the European economy and other economies around the world did a great job of bouncing back, the Greek economy reached a stand still that continues to last until this day.

What We've Seen From Greece This Year

This year, economic conditions are becoming increasingly worse in Greece; and it's scaring consumers. As a result, their banks are bleeding cash as consumers start to take their money out for fear of it not being there later. Throughout the year, more than 30 billion euros have been withdrawn from Greek banks; with an estimated 2 billion euros being drawn over the course of 3 days last week alone. This is proving to lead to an even bigger problem. If consumers and businesses aren't comfortable keeping their money in banks, the lack of cash flow leads to further economic blues. Essentially, with no money in the bank, Greece may need to start printing its own currency in order to pay government workers and other bills associated with maintaining the health of the country. However, if this is done, Greece will have no choice but to exit the Euro; and with no access to international lenders, there may not be much of a choice.

There Is One Way For Greece To Remain Under The Euro

If the European Central Bank continues to bail out Greece, there's a chance that the country's economy could eventually pick up and it could be beneficial to the Eurozone. As a result, European Central Bank officials and Greek government officials have been working to come to a deal with regard to the bailout. While the ECB has been releasing funds to keep the country afloat, they need to come to a deal for long term sustainability before the ECB will release the rest of the 240 billion Euro bailout fund to Greece. However, as of last week, no deal has been made quite yet. If a deal is struck by June 30th, Greece will most likely not be able to pay the 1.54 billion euros it owes to the International Monetary Fund; leading to a default that would most likely be the beginning of an exit from the Euro.

Unfortunately, I Think An Exit Is Inevitable

While patching things up with an ECB deal is a great idea for the short term, Greece needs to focus on more in order to see realistic long term growth. After all, there's only so much bailing out that can happen; and even with the rest of the 240 billion euro bail out fund, the country is still going to be in dyer straights. Nonetheless, if a deal is made, the country will be able to hold itself over for several months; after which, we'll likely be in the same position. So, in my opinion, whether it happens in early July, or it happens in mid-2016, a Greek exit from the Euro is all but inevitable.

What Do You Think?

Do you think Greece will be able to maintain its relationship with the Euro? What are your opinions on the likelihood of Greece and the ECB coming to an agreement before June 30th?