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Greek Unraveling

Sovereign default is not  new.  It is typically  caused by factors  such  as excessive short  term debt, currency devaluation, crash  in exports and  of course faulty economic policies. The seeds of the Greek crisis were  sown when  it joined  the EU. The problem has  been building up ever  since.According to a Forbes report, Greece has  defaulted on its external sovereign debt obligations at least  5 times in the modern era – 1826, 1843, 1860, 1894 and 1932. The combined length of period under which Greece was in default during the  modern era  totaled 90  years,  or approximately 50% of the  total period that the country has been independent. Each time, Greece was allowed to come back and  even made an entry into the Eurozone.Venezuela and  Ecuador, with 10 defaults each, share the dishonor of being the greatest serial defaulters of the modern era. In most  cases, sovereigns can get out of a default by printing more  money at the expense of greater inflation. This option was not available to Greece since  it had become part of the EU monetary union.  And hence it is stuck.  By agreeing to be  a part  of the  EU, Greece has effectively  given up a part of its autonomy.

The surprising development is that despite all the advances in understanding of economics, the  decision was left in the  hands of the  citizens via a referendum, rather than a group of experts. Further, the language used in the referendum was neither clear nor simple, making  it a clear case of bewilderment for the citizens. It was a case of politics taking precedence over economics. Greek  citizens have the  right to decide their future,  but they ought to have  been properly informed at least.Should Greece exit from the EU, its biggest challenge will be to introduce its own currency. Or it might be  better off adopting some foreign  currency like dollar, euro,  etc as its operating currency.One of Greece’s finest contributions to modern times is the concept of democracy, which is actually the foundation for economic prosperity. Sadly, Greece has  not been able to use this fantastic tool to solve its financial crisis. Perhaps, the Greek people will learn  from their troubles this time and  give us Democracy 2.0.

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