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Questions: 1. How did Greece get into trouble with its government debt? Did joining the Eurozone help them pay rising government debts? Explain your answer. 2. Should Greece exit the euro? How would it benefit? What could go wrong? Explain your answers.
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Answer #1

Solution 1

Greece got into huge debt due to spillover effects of Great 2008 US Recession and Structural weakness in Greek Economy as well as unser reporting of debt by previous government. As member of Eurozone it cpukd eventually pay up rising debts due to bailout package received by IMF in coordination with EU and Germany albeit with austerity measures.

Solution 2

Greece should not exit Eurozone as this will lead to financial instability and lack of free trade in EU region thus hurting current account deficit and currency exchange rate. Also this can lead to economic imbalance and rising sanctions and austerity measures from IMF and World Bank.

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