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Polisci110G week 9 notes

by: Erica Evans

Polisci110G week 9 notes Polisci110G

Erica Evans
GPA 3.9

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Notes from 3/1 case study
Governing the Global Economy
Kenneth Scheve
Class Notes
25 ?




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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    


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