Euro Crisis – Tragedy of the Commons – Myth of the 20th Century

When Greece became the 12th member of the Eurozone, officially adopting the Euro as its currency in 2001, it ceded monetary control of its economy with the ending of the Drachma and gave the European Central Bank in Germany power to regulate money printing and broad inflation targets. As only one of many countries in the new currency, Greece was largely carried along by the economic performance of its much larger neighbors in Northern Europe, effectively receiving a discounted borrowing rate lower than it would otherwise. Herein lay the seeds of the Eurozone crisis in 2010, however, as the Greek government, upon adopting the Euro often ran annual budget deficits of over 15%, accumulating a substantial sovereign debt load. When the US financial crisis sparked fears of major bank failures worldwide in 2009, the attention quickly turned to Europe with peripheral countries like Greece, Spain, and Italy’s borrowing rates suddenly spiking – and ultimately resulting in a combination of a record ECB bailout of core European banks after fears of sovereign defaults and the imposition of government spending austerity programs. In the case of Greece at least, where unemployment remains higher than even that seen during the Great Depression of the 1930s, the decision to remain in the Eurozone is controversial, as the flexibility of regaining control of one’s economy is balanced with that of the deeply emotional desire to remain part of the greater European project. Such luxuries, however, can only be enjoyed by those that can afford it, and increasingly Mediterranean countries like Italy may be deciding they no longer can, casting further doubt on the entire Eurozone project.