Business

Table of Contents

Introduction1

Discussion4

Greece5

Game Theory Analysis6

EU and Greece6

EU Members8

Whether Greece Should Leave the Euro9

Significance of Results & Conclusion12

References13

Business

Introduction

On January 1, 2009, the euro celebrated its 10th anniversary. The real economic conditions in the EU (European Union) member economies continued to be robust, of course, with notable variations among its 27 Member States. Several Member States over borrowed, in violation of the Maastricht Treaty guideline limiting budget deficit to 3 percent and national debt to 60 percent of a member economy's GDP. Greece was at the top of the list of the four debtor economies, which included Ireland, Portugal, and Spain. The record shows that these four economies of the original EU-15 were called weaker sisters when the remaining 11, led by Germany, France, the United Kingdom, and Italy, were much stronger (D' Ambrosio et al. 2002).

Following the success of the European continental economic integration, which facilitated free flow of trade and investment funds plus free movement of labor, the family median income gaps of these four economies, compared to that of Germany, which were overwhelmingly large at the dawn of the EEC, became notably narrowed. The four were less industrialized and offered supply of labor at a relatively low-wage rate, offering a market for manufactured products from their mature industrialized neighbors. The four also became members of the Eurozone and the exchange rate fluctuation risks ceased to be of concern. The flow of funds from their richer savings-surplus neighbors of the Community for investment in these less industrialized economies with relatively lower wage rates became an optimal situation. It created jobs and incomes for the peoples in these four economies, whose consumption became a pull factor for their respective economic growth. The marginal propensity to consume of the peoples in the four newly industrialized economies became a notable factor (Curtis 2002). On the other hand, the profit-income of the investors from the richer EU member countries continued to grow.

The EU member economies enjoyed a win-win situation. Following the success of the European economic integration, the income gap among the EU member economies became a lot smaller over time. The relatively higher rate of economic growth of the four contributed to a situation of irrational exuberance where over borrowing and over lending became a mode of operation. Recent economic history in the mature industrialized economy of the United States warrants attention. The Reagan supply-side economics and tax cut led to the robust consumption led high rate of growth, which proved to be unsustainable. As a result, Wall Street recorded a collapse of the stock market in the late 1980s. Similarly, in the 1990s, the growth of the US economy, under what has been called Clintonomics (Matthew & Jeffery 2002), came to be followed by the housing bubble the practice of subprime mortgage, to be followed by the recession of the post-Clinton years. The unfolding of the stories of over lending and over borrowing became a critical issue.

The four EU member economies, as they progressed in industrialization and consequent income- and ...