Foreign Currency Exchange And The Fall of The Greek Economy Part 2May 21st, 2012
Financial crisis within EU countries can have a massive impact on overall foreign currency exchange and can make it particularly hard to get the best exchange rate for euros. The euro affects all worldwide currencies, as investors change their plans and move their money to safer havens when the euro or any other currency for that matter, hits problems.
In our last article we talked about how Greece was already in financial difficulty before it joined the Euro back in 1999 and how it struggled to gain entry to the euro at first. We also discussed how it was hoped that joining the euro would save Greece but in reality it turned out to be a poisoned chalice that impacted foreign currency exchange quite dramatically.
Once Greece had joined the euro it seemed to go on a massive spending spree, a bit like somebody who had not been allowed a credit card for years and got approved for one with a very high limit. Money was borrowed in euros to fund huge wage growth rather than to pay existing debts. Public sector workers were awarded as much as double their original salaries and pensions were as high as 92 per cent of civil servants pre-retirement salary. With the world’s highest ageing population, the pension bill kept mounting.
Other factors that have driven Greece in to financial despair are the fact that much of the Greek middle class are well known for evading tax. So this meant more money going out and less coming in and from a group who should be paying a large proportion of tax, the problem was only confounded.
Hosting the Olympics in 2004 was also not a wise financial move for Greece. The decision was aimed at improving Greece’s status and encouraging spending and tourism. It actually made matters worse, as it cost double what was originally estimated.
At the start of 2004 Greece’s debt had hit €300 billion, which totals more than the value of its entire annual GDP – a situation unlikely to change quickly. Its current budget is running at 13.6 per cent of its gross domestic product, more than twice the Euro zone average.
Things have finally come to a head for Greece as international rating agencies have chopped Greece’s credit rating, over concerns it will default on its debts. The immediate effect of this is that –the cost of borrowing increases and the economy spirals into a vicious cycle that it will be hard pushed to turn around, as it’s problems begin to affect the global economy as well as the worlds foreign currency exchange rates. Visit us at Best Exchange Rates UK for your best exchange rate for euros.
For the first part of this article, click here.