Polisci110G week 9 notes
Polisci110G week 9 notes Polisci110G
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This 2 page Class Notes was uploaded by Erica Evans on Saturday March 5, 2016. The Class Notes belongs to Polisci110G at Stanford University taught by Kenneth Scheve in Fall 2016. Since its upload, it has received 9 views. For similar materials see Governing the Global Economy in Political Science at Stanford University.
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Date Created: 03/05/16
Polisci110G 3/1/2016 Why did Greece join the Euro? • Increase trade with people in the EU • Get better macro-‐economic policy • They have a lot of debt and they think they can lower their borrowing cost • Boosts credibility • Attracts FDI because someone who invests in Greece has access to all the other markets in Europe • Pressure to become a fill member of the EU and adopt the Euro • Because of Greece’s history and culture, EU wanted Greece to join Why did Greece fail? • Public spending – generosity of pensions • Tax capacity/collection low • Corruption • Persistent trade deficits • Large public sector • High prices and high wages • Economy is based on shipping and tourism (not really correlated with rest of the Eurozone) • Greece has not had a budget surplus since 1974! • False statistics – they lied about how big the deficit was! Is it Germany’s fault?/The Eurozone? • Implement super low inflation policies • These policies are best for the Eurozone overall, but not for Greece. Maybe Greece should have just never joined • Initial reaction to crisis was slow – then reacted with austerity Is it the market’s fault? • Risky lending and overly optimistic projections • Cheap borrowing Options: • A: Implement austerity and get the money • B: Reject austerity and hope for unconditional bailout • C: Reject austerity, default and Grexit A: • There will be civic unrest – decrease in wages and increase in unemployment • Unlikely to increase growth • But defaulting is really really bad • A temporary end to the crisis – will increase investor confidence in Greece, at least in the short term B: • Germany and EU are hurt a lot by the Grexit, so they actually might do this • Creates moral hazard – Italy, Spain Ireland will have no incentive to get their stuff in order C: • Capital flight, transition cost • Default decreases costs of servicing debt because they defaulted on it • Ability to pursue expansionary monetary policy – devalue currency and increase trade • Correct the mistake of Greece joining in the first place • Huge banking crisis will be terrible