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In reply to the discussion: Clashes break out at Athens anti-austerity march [View all]magical thyme
(14,881 posts)Tourism is not their only industry. They are the leading international shipping country in the world. They also have several other industries, including multiple industrial products (which rely on imports), food processing, petroleum, and more.
What crushed their economy was a combination of: 1. loans they were forced to take out to pay off interest on loans (eg the Troika forced the Greek government to bail out the privately owned German, French and Greek banks), and 2. austerity that hit the most vulnerable the hardest and destroyed internal demand for goods and services, and 3. an oligarchy that refuses to pay taxes (not unlike pretty much every other country in the world at this point. Think the Walmart heirs.)
Per Krugman, the northern European countries are net exporters. A weak euro is to their advantage because it lowers the cost of their goods to the rest of the world, which boosts their exports. The southern European countries are net importers. A weak euro is to their disadvantage because it increases the cost of their imports.
Net importers that control their own currency, eg the US, can use monetary policy to balance their imports versus exports. For example, by keeping the dollar strong relative to other currencies, we lower the cost of imports us.
When net importers don't control their own currency, they have no tools available to keep their economies in balance. They are left to take out loans to make up the difference, and eventually forced into permanent recession. That is what happened to *all* the PIIGS countries. Greece is just the smallest and weakest, and therefore the first to go down. The rest will be following.
Monetary policy has consistently been used to keep the euro weak, benefitting the net exporters at the expense of the net importers. But without anything done to support the net importers, who are damaged by that policy. The structure of the Euro doesn't support all the eurozone members; just the net exporters. Again, in the US the weaker states are supported by the stronger states.
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