Since the Greek debt crisis emerged at the end of 2009, it has had a wide-ranging short-term impact on financial market trends in Europe and even the world, becoming a significant destabilizing factor in the international financial market. Two important factors affecting people's views on the prospects of the Greek debt crisis are the negotiation process between the Greek government and the Eurozone and the International Monetary Fund, and the Greek people's protests against the government's fiscal austerity policies. Whenever news comes from these two aspects that is inconsistent with people's expectations, financial markets will be in turmoil. International stock markets, bond markets and even commodity markets all reacted to the Greek news to varying degrees. In the context of instantaneous dissemination of information and highly internationalized financial markets, quickly interpreting major events and adjusting investment strategies accordingly is now a common situation in the financial markets of various countries. Given this, it is not surprising to see Asian stock markets, including those in China, also being affected by the Greek debt crisis.
However, historical experience has repeatedly shown that when interpreting and reacting to events, financial markets often only focus on distinguishing between "positive" and "negative", "major" and "minor", but do not pay attention to the distinction. "Short term" versus "long term", "direct versus indirect". This article will focus on the mid- to long-term perspective and take into account the indirect effects to discuss the possible international impact of the Greek debt crisis in several important aspects.
(1) Impact on the euro as a regional unified currency
Since the birth of the euro, there have been international doubts about the sustainability of the euro as a regional unified currency. Among the many skeptics are names like George Soros. Whenever there are differences of opinion, international disputes, or public street demonstrations in Europe, voices of suspicion will rise louder.
This time, after the Greek debt crisis escalated and the differences between the Greek government and the Eurozone, as well as the Federal Republic of Germany and France became public, the view that the euro has begun to falter and will collapse in the foreseeable future has become more intense. It became popular.
Some people even imagined the path of the euro's disintegration: first, Greece announced its withdrawal from the euro area, and then member states such as Spain and Portugal held referendums because they could no longer bear the constraints from the euro area. Following in the footsteps; next, Germany and France, the two euro "axis countries", have increasingly deepened their differences and voluntarily chose "divorce".
Think carefully about the essence of the problem. The key is: in the face of the Greek debt crisis, can the European Union, the European Central Bank and Greece reach and implement an effective rescue and debt restructuring plan? In other words, will Greece finally agree to accept a rescue package led by the European Central Bank and accompanied by strict conditions for the Greek government's fiscal adjustment? If the answer to this question is no, then it is inevitable that the eurozone will fall into an unprecedented existential crisis.
Legally, the "Lisbon Treaty" (also known as the European Union Constitutional Treaty or the "EU Charter") adopted two years ago stipulates that member states have the right to withdraw from the EU or the Eurozone, as long as the European Union can Two years' advance notice and fulfillment of several obligatory conditions (see Athanassiou 2009). In the past, when the Eurozone was launched, European official documents stated that countries joining in monetary integration was an "irreversible" process, meaning that member states were not allowed to withdraw. Now, Europe appears to be taking a step back on the issue. But in fact, giving member states more autonomy on the exit issue is to consolidate the political and democratic foundation of European integration.
In this context, looking at whether Greece will choose to leave the euro zone requires an analysis of how the Greek people view the benefits that the euro brings to them.
Indeed, since the end of 2009, on the one hand, the Greek government has stepped up negotiations with the Eurozone on a rescue package and is brewing domestic fiscal adjustment measures. On the other hand, Greek people have repeatedly broken out in large-scale street demonstrations to protest. Government austerity policies. Judging from the demands of the demonstrations, it is easy for them to turn their attention to the euro zone. The Greek government can tell the domestic people that it is the Eurozone that has put forward stringent demands for fiscal austerity.
However, from two aspects, the Greek people's fierce protests against the Greek government's austerity plan do not necessarily indicate that popular support for the euro zone has weakened significantly in Greece. First, the participants in the protests were mainly from the civil service, which was the first “victim” of the austerity plan. Although this sector is very large in Greece, it is still a small part of the entire Greek population. Secondly, judging from past opinion polls, the Greek public’s support for the Eurozone is relatively high among Eurozone countries, and is similar to other countries with similar levels of economic development in this regard, such as Ireland, Portugal and Spain. wait. This obviously reflects a tendency within the Eurozone, that is, the lower the level of economic development, the more people tend to believe that joining the Eurozone will bring more benefits. As mentioned earlier, if it were not for the enthusiasm from the Greek government and Greek people to join, Greece would not have become the twelfth member of the Eurozone in 2001.
Economically, 46% of Greece's export market is within the European Union, which is a higher ratio than many other comparable European countries. If it leaves the Eurozone, the connection between the Greek economy and Europe will be greatly impacted, and the Greek economic prospects will be even bleaker.
It can be said that political parties in Greece have a lot of knowledge on the issue of the euro and euro integration. Few of them are playing the "anti-Euro card". In this regard, Greece, like some other southern European countries, has important differences from the United Kingdom, Sweden, Denmark, etc.
Therefore, it is very likely that Greece will voluntarily choose to accept the fiscal adjustment plan proposed by the euro area and continue to be a member of the euro area; in the process, some local turmoil and setbacks may also occur, but The end result is that Greece does not serve as a precedent for leaving the eurozone.
In the next few years, Greece is bound to undergo painful adjustments, and its economic growth rate will hardly see an improvement in the past year. However, as long as the Eurozone's rescue and adjustment program is accepted, the Eurozone's support for Greece is likely to further increase on the existing basis.
Objectively, the Greek debt crisis and the accompanying tension between member states and the euro area will also have other profound impacts on the euro area. The most noteworthy direction is that if the adjustment measures for the Greek debt crisis are successfully promoted and achieve desired results, the degree of coordination of fiscal policies within the euro zone will be further improved in the future. In a sense, the Greek debt crisis is a consequence of the existence of a unified monetary policy but a lack of coordinated fiscal policy in a currency area. In view of this, the euro area will move towards closer fiscal policy coordination in the future. That is to say, the Greek debt crisis may also promote the deepening of fiscal policy coordination and cooperation in the euro area.
In addition, the Greek debt crisis may also cause the Eurozone's extensional development process to slow down. There are now many countries on the eurozone's "waiting list", including not only the Western and Nordic countries mentioned above, but also Eastern European countries, and even the former Soviet Union and the Soviet Union. Obviously, after the current Greek debt crisis, the Eurozone will learn lessons, treat applicant countries more prudently, and moderately increase the entry requirements for new members.
(2) Impact on the European economy and the euro exchange rate trend
Greece has a population of just over 10 million and a GDP of approximately 300 billion euros. Whether in the 16-member Eurozone or in the 27-member European Union, Greece’s proportion is very small. The impact of the Greek debt crisis on Greece's own economy is definitely very negative. After accepting the Eurozone bailout and adjustment plan, the Greek government will have to implement a series of austerity measures, including reducing civil servant salary levels and welfare levels, and cutting certain public expenditures. In the short term, domestic demand in Greece will contract. In the medium term, if the bailout funds from the Eurozone can not only meet the debt payment requirements, but also be used for non-debt purposes, then the Greek economy will also be stimulated to a certain extent and will be much better than without any foreign aid.
For the European economy, mainly the Eurozone economy, the impact of the Greek debt crisis is more complicated. During the outbreak of the Greek crisis, the European and Eurozone economies were in the process of weak recovery. Judging from Figure 3,
As mentioned earlier, the creditors of Greek debt are mainly European banking institutions. If the Greek government declares a default, these banking institutions will face tens of billions of euros in bad debts. Obviously, before the Greek government debt crisis is alleviated with certainty, the European banking industry has to adopt a conservative strategy. Credit growth is expected to slow significantly in the near term, both in the euro area and across Europe.
Figure 4: Gross domestic product growth rate of industrialized economic zones (unit: %)
Data source and explanation: International Monetary Fund's "World Economic Outlook" April 2010.
The outbreak of the Greek debt crisis and the tortuousness of its rescue process have brought some new uncertainties to the European region and the euro zone, which will obviously affect the confidence of local consumers and investors. Adverse effects on domestic demand in Europe.
However, if the market turmoil caused by the Greek debt crisis begins to stabilize, other economies in the euro zone (such as Ireland, Portugal and Spain) will also "Turn the crisis into safety," then it will be possible for the financial markets and real economy in the Eurozone to start a new recovery process.
But this new recovery is also likely to be slow and relatively insignificant. This is mainly because policy debates at all levels will consume much of the energy of European policymakers in the context of rising unemployment. Moreover, Europe has a reputation of being "conservative" and it is unlikely that there will be drastic reforms or stimulus policies like the Obama administration. In this way, in the next one or two years, the European economy will continue to grow at a low speed. This originally had little to do with the Greek debt crisis.
The international impact of the Greek debt crisis has been transmitted to regions outside Europe. U.S. officials expressed “serious concern” about the negative impact of the Greek crisis (Chan 2010). The Asian region will also feel the impact of the Greek debt crisis and its subsequent shock waves.
Figure 4 shows the International Monetary Fund’s growth forecasts for the three major economies without taking into account the impact of the Greek debt crisis. The most likely prospect is that in 2010, European economic growth will be at least 0.5 percentage points lower than the forecast number, and the United States will be 0.2 percentage points lower.
Figure 5: Euro-USD exchange rate, monthly average, January 1999-April 2010
Perhaps, the impact on the euro exchange rate is the most important international impact of the Greek debt crisis . The exchange rate between the euro and the U.S. dollar has changed a lot since the outbreak of the Greek debt crisis, and the euro's tendency to depreciate is very significant. This involves many factors of the Greek debt crisis, as well as what many newspapers and magazines now refer to as the "European sovereign debt crisis", which generally refers to the rising government debt and the urgent need for external assistance faced by several economies in the euro area. .
As mentioned earlier, the euro zone is now facing major challenges, but the possibility of the euro zone falling apart is very small. Financial markets have evaluated the risks to the euro highlighted by the Greek debt crisis and have reflected them in the euro's exchange rate trends. The euro exchange rate may continue to fall in the coming period.
Judging from past experience, the exchange rate changes between the euro and the US dollar show a certain degree of cyclicality (see Figure 5). The euro and the US dollar are now the two largest international currencies in the world. In addition to demand from international trade and international direct investment, demand for these two currencies also has many demands related to financial investment and savings needs. In other words, in addition to the relative economic growth prospects of the two major European and American economies and related real economic factors, the factors that affect the exchange rate between the euro and the U.S. dollar include factors related solely to financial investment.
The characteristics of financial investment needs and their effects are that portfolio adjustments are made as expected; once the adjustment begins, the adjustment itself has an impact on the exchange rate (or asset price) trend. Such an adjustment may well be happening now. Many international investment institutions are not optimistic about the euro and begin to reduce their euro asset holdings. In this way, the exchange rate of the euro falls further. When the euro falls further, more international investment institutions appear to be not optimistic about the euro, or the original institutions become further unfavorable. Be optimistic about the euro, which will lead to a new round of euro asset adjustments (reducing holdings), which will trigger a new depreciation of the euro.
Although this process cannot continue indefinitely, it is likely to occur on a significant scale over a period of time, such as one to two years or so. Therefore, the euro is likely to continue to decline in the coming period.
The extent to which the exchange rate between the euro and the US dollar will change is also a common concern. After the birth of the euro, the lowest point of the exchange rate between the euro and the US dollar was 1 euro for 0.88 U.S. dollars, and the current level (1 euro for 1.28 U.S. dollars) is much higher than this point. Different from the previous situation, after the international financial crisis, the international community also has a lot of uncertainty about the US dollar, especially the long-term prospects of the US dollar as an international currency. There are many differences in judgment. Taking into account the new situation of the US dollar itself, the decline in the exchange rate of the euro against the US dollar is likely not to reach a historical record.
Due to the importance of the euro in the international economy, changes in the exchange rate between the euro and the US dollar will have many impacts. One of the possible important impacts may have a certain adverse effect on the U.S. economic recovery. The Obama administration's slogan of revitalizing the domestic economy through export growth contains a signal that it hopes the dollar will be relatively lower in the international market and the price competitiveness of U.S. products in the international market will be relatively higher. However, this desire clearly conflicts with the trend of the euro lower and the dollar higher. Economic and trade frictions between the United States and Europe may increase.
Sometime in late 2009 and early 2010, when there were reports that the economic recovery rate in some economies was much higher than market expectations, many people began to worry that the world economy would face a new risk, that is, post-crisis The recovery process was too fast during the period. If the Greek debt crisis has had a more or less negative and inhibitory impact on the European economy and even the international economy, then this may have played an objective role in eliminating or weakening the risk of over-rapid recovery that the world economy may have faced. Positive effect.
(3) Impact on the Chinese economy
The main impact that Greek debt may have on the Chinese economy has multiple channels. First, it directly affects China's foreign trade through bilateral trade; second, it affects the Chinese economy by affecting the European economy; and third, it affects China's foreign economic and financial relations by affecting the exchange rate between the euro and the U.S. dollar.
The first aspect is actually less important. The Greek economy has slowed down due to the debt crisis and its adjustment plan, and its foreign trade will definitely be affected to a certain extent. However, the specific impact of this impact on bilateral trade with China may be very small.
The second aspect is that Greek debt will relatively slow down the economic recovery in Europe, which will have a certain adverse impact on trade activities between Europe and China. The impact may be significant, but not too large. In the past few years, the European economy has been in a state of relatively low growth, but the bilateral trade in goods between Europe and China has maintained relatively rapid growth. According to Chinese official statistics, the EU has become my country's largest goods trading partner since 2004, and the trade volume between the two parties has been growing at a higher rate than China's other trading partners since then. During this period, the exchange rate of the RMB against the euro has risen and fallen. Exchange rate changes have not had much impact on the growth of goods trade between China and Europe.
Since the beginning of 2010, the growth rate of China's exports of goods has returned to double-digit levels, showing a rapid upward trend.
According to market participants, this is not entirely caused by regular economic growth abroad, but mainly caused by the increase in inventory by foreign manufacturers (merchants in the import link and domestic sales link). From late 2008 to most of 2009, many foreign manufacturers significantly reduced their inventories. They began building inventories just as the economic recovery was beginning to take shape, reflecting fluctuations in intermediate demand. In other words, excluding severe fluctuations in intermediate demand, the demand for Chinese products in foreign markets is relatively stable. If we agree with the previous analysis that the adverse impact of the Greek debt crisis on European economic growth will not be particularly large, then China's adverse impact on European trade will not be too great either.
Figure 6: Exchange rate between RMB, Euro and US dollar, monthly average, January 2002-April 2010
Data source: State Administration of Foreign Exchange website
In the third aspect, that is, the possible impact of changes in the euro exchange rate, various scenarios are complex. If the exchange rate between the RMB and the US dollar remains basically unchanged, then the depreciation of the euro against the US dollar also means the depreciation of the euro against the RMB. This will more or less affect China's exports of goods to the euro area economies and their growth. As mentioned earlier, the experience of the past few years shows that China's bilateral trade with the European region or the Eurozone has a certain degree of exchange rate resilience, that is, while the exchange rate changes, China's goods with the European region or the Eurozone continue to show rapid growth momentum, while China continues to maintain Trade surplus pattern. Of course, the significant appreciation of the euro against the U.S. dollar and the accompanying significant appreciation of the RMB against the euro will bring significant financial pressure to some Chinese companies exporting to Europe.
However, on the other hand, it should also be noted that when domestic inflation is currently on the rise, the appreciation of the RMB has a certain effect of inhibiting "imported inflation", thus helping the domestic monetary authorities to control Inflation trends.
The impact of exchange rate changes between major international currencies on China's economy now also involves an important aspect, namely the value of China's huge foreign exchange reserves. Many commentators have noted that because foreign exchange reserve assets are distributed among different currencies, their aggregate value is affected by exchange rates and changes in the exchange rates between these currencies. Usually, within a certain period of time, if more foreign exchange assets are allocated to currencies whose exchange rates tend to rise, the total value of foreign exchange reserves will automatically increase. vice versa. Therefore, if the foreign exchange reserve management authority maintains a constant currency structure, then the total value of foreign exchange reserves will inevitably be affected during periods of exchange rate changes.
However, we cannot simply think that because the euro has a certain tendency to depreciate, the currency structure of my country's foreign exchange reserves should be adjusted accordingly, that is, reducing the proportion of euro assets and increasing the proportion of non-euro assets. If this view is really used in foreign exchange reserve management, the results will be bad. The reason is that due to the large scale of my country's foreign exchange reserves, currency adjustments are bound to have an important impact on the international currency market. In other words, if we decide to sell euros and buy non-euro assets, the euro exchange rate will fall further, and the value of our unsold euro assets in our foreign exchange reserves will fall more sharply.
Therefore, from a relatively long-term perspective, the currency adjustment of foreign exchange reserves cannot be easily "followed by the market". On the contrary, it needs to be done from a strategic perspective, and many factors besides short-term exchange rate changes must also be taken into consideration. factors.
3. Lessons and Challenges from the Greek Debt Crisis
The Greek debt crisis is not over yet, and it is too early to talk about its experience and lessons. However, from the situation that has emerged, and in connection with the financial crises that have occurred many times in recent years, people can still draw a number of lessons that deserve great attention and see a number of major challenging issues.
(1) Financial crises are possible everywhere, and no economy in the world has a financial crisis exemption certificate.
From a broad perspective, the financial crisis is a manifestation of the accumulation and outbreak of risks in the financial sector (including government financial departments) in the operation of modern economies. With the development of the market economy, various risks in the real economy have a tendency to continue to shift and accumulate in the financial sector. Financial crises erupt when a country's financial sector itself can no longer withstand the excess risks it has taken and releases those risks in a dramatic form. The Greek debt crisis is just the latest example of this problem.
Moreover, economies that have experienced faster economic growth in the past period may face more financial risks and a higher possibility of a financial crisis. The economies in East Asia that were hardest hit by the financial crisis in the 1990s were the fastest growing economies in the past, such as Thailand, Indonesia and South Korea. South Korea's rapid economic growth since the 1980s was once widely known as the "Miracle on the Han River" and was praised by people around the world.
The two major sources of the 2008 international financial crisis, the United States and the United Kingdom (United Kingdom), have been the best growth performers in the industrialized world since the late 1990s. The two economies were once considered by many to be the most developed in the world's financial markets, but both ended up experiencing large-scale financial crises.
In addition to Greece, the economies involved in the European sovereign debt crisis include Ireland, Portugal and Spain.
In the past period, they have also been praised by many people as the "stars" of European economic growth to varying degrees, and have achieved impressive economic growth performance. Together with Iceland, a small Nordic country that fell into overall bankruptcy in 2008, it can be said that Europe's "star economies" have all encountered financial crises.
In 2009, there was a financial crisis in Dubai in the Middle East. Dubai is the "star economy" in the region, the pearl in the desert. Rapid economic growth has attracted large amounts of foreign investment, but capital inflows have grown faster than returns on local capital can support them. The risk of default has increased sharply, and debt restructuring is inevitable.
The specific reasons for the outbreak of financial crises in various countries are different, but they all have a huge impact on the market and normal economic activities. Fundamentally speaking, financial crises are inevitable consequences of accumulated problems in the process of rapid economic growth. Any country that has experienced long-term rapid economic growth should shift its policy focus to preventing financial risks, structural adjustment and solving accumulated problems.
Moreover, issues that once seemed less important during the rapid economic process, such as tax efficiency and fiscal information disclosure in the Greek economy, will become extremely difficult once overall risks explode. difficult problem.
(2) Mature economies also face serious sovereign debt risks, and the international community must raise its awareness of this issue.
For a long time in the past, the international community tended to believe that the sources of financial crises were mainly in emerging market economies, and that sovereign debt risks were mainly those developing economies that borrowed heavily from the outside world. There are reasonable elements in these views. Emerging market economies do face significant financial risks. In order to cope with insufficient domestic savings, many developing countries borrowed foreign debt from various channels, resulting in a high foreign debt burden and thus facing serious sovereign debt risks.
However, if these correct views are inappropriately extended and expanded, and thus intentionally or unintentionally believe that mature economies not only face lower financial risks, but also will not encounter sovereign debt crises, then, This could not be more wrong. Greece, a number of other economies in the euro area, as well as the United States, the United Kingdom, and Japan have all recently faced significant sovereign debt risks, more so than many developing or emerging market economies.
In the past, the International Monetary Fund only paid attention to publishing external debt data of developing countries, which somewhat reflected the influence of the above-mentioned popular views. The Global Financial Stability Report released by the agency in April 2010 released for the first time a long-term series of the ratio of government debt to gross domestic product of the seven major industrial countries as a whole. It can be seen that this ratio was as high as 115% in 1950, reflecting the special conditions during the Second World War and the early post-war economic recovery; in subsequent years, the ratio gradually declined, reaching as low as 35% in the early 1970s. below; it then turned upward and accelerated after entering the 1990s; after the outbreak of the international financial crisis in 2008, it further increased to 105%, and is estimated to reach 112% in 2010, close to the 1950 level. It is clear that it is these leading economies in the world economy that have faced increasingly prominent sovereign debt risks in recent years. The Greek debt crisis may, in a certain sense, be just a prelude to the larger sovereign debt crisis in mature economies.
From the perspective of historical evolution trends, in the past, when the financial sector was relatively underdeveloped, the corporate sector would experience bankruptcies when encountering economic cycles, and social and economic structural adjustments mainly occurred in the corporate sector. After the financial sector grew, especially in the context of the weakening of the risk control function of financial institutions, the risks of the corporate sector began to transfer and accumulate to the financial sector through various channels and forms, and the financial sector became the source of various risks in the social economy. Distribution center. If the private enterprise sector and the financial sector accumulate risks and a crisis breaks out, and the government steps in to rescue them, then to a certain extent, there will be a transfer and accumulation of risks from the private sector to the public sector. From this perspective, sovereign debt risk is the final concentration within a country of various risks that already exist in the social economy. Of course, in some countries with a relatively low degree of development, sovereign debt risks will also arise in the context of a relatively underdeveloped private sector or financial sector.
The substantial increase in government debt in mature economies in recent years has mostly occurred under the banner of "Keynesianism" in response to demand contraction and economic recession. However, there is also a misunderstanding of Keynes's thought. Increasing public spending to cope with short-term demand contraction is based on the short-term nature of demand fluctuations. If the increase in public expenditure is not aimed at short-term demand fluctuations, then the government's fiscal deficit and debt accumulation will become a structural problem rather than a cyclical problem. In this way, sovereign debt risks will increase day by day and eventually evolve into a financial crisis.
The outbreak of the Greek debt crisis should prompt the international community to re-understand and evaluate the sovereign debt risks of mature economies, and make early preparations to prevent the next larger-scale financial risk.
(3) The operation of a regional currency area that lacks unified fiscal discipline has endogenous risks, and the aid system may be accompanied by significant moral hazard.
As mentioned earlier, before the introduction of the euro in 1999, the Eurozone established a number of entry conditions: the ratio of fiscal deficits to GDP of member states or potential member states should not exceed 3%, and the ratio of government debt to domestic production should not exceed 3%. The total value ratio does not exceed 60%, and the inflation rate and interest rate in the past three years are close to the average levels of various member countries. If these conditions are adhered to, then the euro area can achieve consistent monetary policies and similar fiscal policies as a whole. Moreover, if the last requirement is met, that is, "the inflation rate and interest rate in the past three years are close to the average level of each member state," then this also shows that the economic cycles faced by each member state are at least similar, and the macroeconomic policies of each member state are at least similar. There will be much less friction.
However, in fact, since accepting Greece as a new member of the euro area, the euro area has somewhat relaxed its original entry conditions. In this way, the euro zone is tantamount to absorbing new and more risks for itself.
As mentioned earlier, the Eurozone has relaxed its fiscal deficit and government debt control standards for existing members since 2005 under pressure from some member states. Because of this, euro area members such as Greece have been able to significantly exceed the fiscal deficit and government debt ceilings in the past few years. This breakthrough reached a record high level after the international financial crisis broke out in 2008.
One of the practices in the operation of the European Central Bank is that commercial banks can use government bonds they hold as reserves and transfer part of them to the European Central Bank. In this way, Greek commercial banking institutions as well as non-Greek commercial banking institutions in the euro area can hold Greek government bonds as reserves. Since the European Central Bank is not allowed to discriminate against the government bonds of any one member state, it effectively treats Greek government bonds as having the same level of risk as federal German government bonds. In other words, the convenience of issuing Greek government bonds has been improved. The Greek government will of course be tempted as never before to issue more bonds and increase its own fiscal spending. Banks and other financial institutions and investment institutions in the Eurozone are also motivated to subscribe for government bonds in countries such as Greece.
This approach of the European Central Bank obviously brings potential risks to itself. However, under the existing institutional arrangements, it seems difficult for the European Central Bank not to do so. It can be said that the separation system of finance and currency is both a risk control mechanism and a source of risk within the Eurozone.
In May 2010, the EU decided to establish a "stabilization fund" of up to 750 billion euros in an attempt to support those euro zone member states suffering from sovereign debt crises. In theory, it can provide financial support for the euro zone. Steering smoothness plays a positive role. However, if the sovereign debt crisis of the euro area member states is resolved by allowing member states to receive funding almost free of charge, then the euro area will inevitably face greater internal risks or moral hazards in the long term. "Free funding" amounts to encouraging member states to engage in fiscal expansion irresponsibly or without sufficient responsibility.
Therefore, the Greek debt crisis essentially poses a serious challenge to the effectiveness of risk prevention in the euro system. The direction of future reforms in the Eurozone has also been clarified by the Greek debt crisis.
Recently, there is a view in the international community that the Greek crisis has been deepened by the unification of the currency. This view was expressed by Krugman and others (see Krugman 2010 and Cowen 2010). They believe that if Greece, like Thailand more than a decade ago, had an independent currency and devalued its currency externally when it encountered a crisis, its economic recovery could be stimulated and its external debt payment problem would eventually be solved. Moreover, they also believe that the U.S. government debt/GDP ratio is also very high, and an important reason why it does not need to worry about the debt crisis like Greece and other euro zone members is that it has the possibility of devaluing its own currency.
This view cannot be said to be completely unreasonable. However, people should also be more reminded of the cascading effects of currency depreciation during the East Asian financial crisis. That is, the substantial depreciation of the Thai currency caused financial market turmoil and currency depreciation in other countries, such as Indonesia and South Korea a few months later. Suppose Greece is outside the Eurozone and the drachma (the original currency of Greece) depreciates sharply after Greece is hit by the debt crisis. Then, this situation will almost immediately produce a widespread and serious shock wave effect in Europe: Needless to say Portugal, Economies such as Spain cannot bear it, and it is very likely that even Italy and others will also be unable to support it. The European economy and financial markets will undoubtedly fall into chaos. Europe had many similar encounters in the 1970s and 1980s.
In other words, if Europe does not have the Euro Monetary Area, the same Greek debt crisis will cause greater impact and damage. In this sense, the eurozone institutions have played a significant buffering role.