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before the Euro currency

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  • 03-10-2015 7:22pm
    #1
    moneymad
    Registered Users Posts: 882 ✭✭✭


    Hi all,
    Would anyone shed some light on this for me.
    How much debt did Greece owe in the lead up to adopting the euro currency.
    In particular, debt owed in Drachma.
    The reason I ask is, why wasn't the debt consolidated before countries adopted the Euro currency?


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    #2
    andrew
    Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 3,372 Mod ✭✭✭✭andrew


    Consolidated as in all European debt combined into one European wide debt pile which every country had to repay a part of?


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    #3
    vandriver
    Registered Users Posts: 3,463 ✭✭✭vandriver


    99.9% of GDP in 2001


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    #4
    moneymad
    Registered Users Posts: 882 ✭✭✭moneymad


    I'm not sure the mechanics of it but something like that.
    Why issue a country credit when they are in debt? I understand debt consolidation , pay it off for longer at a lower rate. But the opposite happened. Credit was issued at very low rates and now debt will be paid off over a longer period.

    Just to note - I'm not remotely educated in macro economics.


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    #5
    Voltex
    Registered Users Posts: 1,580 ✭✭✭Voltex


    A guy called Mundell theorised about currency unions and came up with a series of conditions that favoured the success of such unions. Among these was the concept of homogeneity of the members business cycles as a pre requisite.

    In the good times monetary policy was not suitable for the economic conditions in Ireland at the time (a slow European economy and a booming Ireland), and hence contributed to the asset bubble in housing. Fast forward a number of years of pain and we find a very similar situation emerging, Ireland's economy is out of sync with the other major Euro economies and have a monetary policy that is not suited to the economic conditions.

    Slightly off topic, but I thought it would be a related point.


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    #6
    Voltex
    Registered Users Posts: 1,580 ✭✭✭Voltex


    moneymad wrote: »
    I'm not sure the mechanics of it but something like that.
    Why issue a country credit when they are in debt? I understand debt consolidation , pay it off for longer at a lower rate. But the opposite happened. Credit was issued at very low rates and now debt will be paid off over a longer period.

    Just to note - I'm not remotely educated in macro economics.

    Countries rarely pay off their debt...what they do is to continuously roll it over and allow inflation and growth in their economies to diminish the real burden of the debt. Greece is a fairly unique case..they should never have been allowed to join the Euro as they didn't meet the conditions laid down in the Maastricht treaty. And the fact they lied about the economic conditions didn't help.


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