Greece and Euro Zone

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Should Greece remain part of the Euro?

There are several economic reasons for Greece to exit the eurozone. Presently, Greece has a huge foreign debt, and its commodities are less competitive in the global market. Majorly, this is because the current value of the euro in the international market has depreciated. Countries incur balance of payment deficits when their commodities are costly in the international markets since their procedures are not cost-effective. These deficits are likely to stay if there are countries financing them indefinitely, usually by lending money to countries incurring deficits (Arnold, 178). However, this is uncertain lest the deficits are small or a country has a good approach to servicing their debts. If not, deficit-running countries must cut their deficits. One method through which a country can cut the deficit is by devaluing its currency. This reduces the cost of exports in foreign countries and makes imports costly to local consumers and corporations. Presently, Greece is restricted by being part of the eurozone (Lorca-Susino, 104).

According to the International Monetary Fund (IMF) estimates, Greece requires a minimum devaluation of 15 to 20 percent against the euro to stabilize its current account. A higher devaluation would be required to balance its foreign debts. These are not substantiated approximations because required currency adjustments are very difficult to estimate. However, it is clear that the cost of imports will be higher for the Greeks. Greece will undergo several years of severe adjustment if it stays in the eurozone. This implies indeterminate high unemployment rates and sluggish economic development. During these years, living standards in Greece would decline compared to other nations in the eurozone regardless of cushioning aid it gets from the IMF and other nations. Even though exiting the euro zone is very costly. Eventually, it would be better off. In addition, Greece would be more flexible when it has control over its currency.

The impact on MNC’s if Greece exits Euro

If Greece exits the euro zone, the first likely step in reducing the deficit would be devaluing their currency. Accordingly, exports in foreign countries would be cheaper while imports would be expensive to local consumers and corporations. Again, the cost of foreign MNC’s exports and manufacturing of products that compete with Greece’s importations would decrease. Some foreign MNC’s also import unprocessed goods from Greece. Devaluing drachma would lower the cost of these products and increase the output of the MNCs dealing in them. This would make them more competitive since the products would be cheaper (Skene and Melissa, 16).

Works Cited

Arnold, Roger. Economics. Melbourne, Vic.: South-Western Cenage Learning, 2014. Print.

Lorca-Susino, María. The Euro in the 21st Century: Economic Crisis and Financial Uproar.Farnham, Surrey, England: Ashgate Pub, 2010. Print.

Skene, Leigh and Melissa Kidd. Surviving the Debt Storm: Getting Capitalism Back on Track. London: Profile Books, 2013. Print.

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Greece and Euro Zone

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