• 14Nov

    What caused the problem in the Eurozone?

    The world is facing maybe the biggest challenge in the whole of economic history. The world economic crisis has no mercy for anyone. Many countries are in chaos, fighting to survive. In the European Union it began with Greece, then spread to Italy, Spain, and Portugal. Those countries even got a nickname – PIGS (P for Portugal, I for Italy, G for Greece, and S for Spain) as many people believe the crisis is their fault and their populist governments which decided to go into a spiral of loans. Even the strongest countries in the Eurozone are frightened of what might happen if the crisis continues. What occurred that suddenly everything went down? Is that something that occurs spontaneously, or is there some mechanism that causes such huge destabilizations?

    Big vs small

    The world economy is based on liberal capitalism that made the borders between the countries disappear and enabled free trading without administrative penalties. That actually transformed the world economy into one huge global market full of giant corporations that became synonyms for the global competition. In order to survive, they made mergers and acquisitions and were becoming bigger and bigger, until they grew into real giants gaining more wealth than the majority of the countries in the world. Let’s take Apple as an example – it is currently worth more than the GDP of Switzerland! Today, every local store or factory in any country may be suddenly pressured by these giants. Like in the animal world the big fish eats the small fish, so the result of fighting for survival on the market is well known even at the beginning. Smaller companies usually have 2 options: either to join the bigger companies on their conditions or to fight and probably be defeated.

    All the euros

    Greece was found in economic collapse in a very short time

    Let’s assume that one big corporation invests money in some poor country. In one moment it is able to destroy all domestic competition. What will happen when all the resources are exploited by the corporation? It will decide to retreat from that country to some other country, because it has no interest to stay there any longer. It will leave the economy of the country ruined and on the edge of bankruptcy.


    What happened with Greece? Everything was functioning normally and suddenly Greece was found in economic collapse in a very short time. How is it possible that an economy with good economic performance suddenly transforms into the country insecure for the investments, with low GDP, and with big unemployment? Before the crisis, the Greece was considered to be a country with a good economic environment, attractive to investors from all over the world. It is worthwhile to mention that Greece took various credits from the different kinds of lenders to build an infrastructure that was supposed to raise the economic potential of the country and attract foreign investors. Productivity was rising and new investors were bringing more money in taxes to the state budget, so the loans could be repaid without bigger problems. But when it came to a crisis, many foreign investors started to pull their investments from Greece to their home lands, because the crisis also impacted their finances. That caused sudden grow of unemployment in a very short time and a deficit in the state budget. The government had only one solution – raising taxes. But raising taxes is not good for the home business and that brought even bigger unemployment, because many domestic entrepreneurs closed their stores and companies. Greece soon became incapable of repaying its debts and was brought to the edge of bankruptcy, so the only solution was calling the International Monetary Fund for help.

Share your thoughts about the article