The recent set of dire economic problems in Greece clearly spelled out the fact that countries are still not completely out from the clutches of recession. This is true especially for the European countries, where most of them are counting the problems which are now arising since they have a singular currency. Despite the Greek woes, the European countries are better off learning from the mistakes they make rather than sticking with their old plan and continuing on the path they are following now.

Greece has now entered a long period of recession, which may go well beyond three years. The government owes around 300 billion euros ($400 billion) and has to pay it off in this month itself. The IMF has offered a bail-out package, but only if Greece slashes its public spending and increases its tax revenue. This comes at a time when most European countries fear a similar situation and hence are anxious to find some quick solutions. The reason why Greece is facing such a situation is because it has been living beyond its means in the recent years and its high level debts have placed a huge strain on its economy. With government spending exceeding the normal boundaries, the Greek economy was not able to cope with the recession period and hence it fell flat on it face. But this situation is not just faced by Greece.

The impact of the common European currency is hitting everyone in the Euro-zone. The repercussions of the Greek fallout will first hit those economies which have agreed to help Greece. These account for 15 economies in Europe as the taxpayers money in these countries will be diverted towards bailing out Greece. This will hence see a rise in taxes in these 15 countries, something which will not go down well with the people in these countries. Apart from that, the international financial markets will be affected too and it will go on to hit similar economies such as Portugal, Ireland, Italy and Spain, countries facing a problem in rebalancing their books. These financial agencies may well downgrade the likes of Spain, Portugal and Greece, an act which will again rebound in the financial markets and create a domino effect. Hence the repercussions of the problems in Greece have just begun and this juggernaut will take a solid effort if it has to be stopped.

Spain and Portugal are listed as the next two countries which may face a similar surge of economic problems if the governments do not initiate hard economic policies. The Spanish economy, which has been lauded as one of the best performers in recent years, has come under scrutiny as analysts have said that the boom was mainly to do with the real estate boom. The country has entered the red zone as the global crises hit Spain in the worst possible manner with 19 per cent unemployment, which is twice the European Union average and Spain is the only major industrialized country not expected to rise out of recession before 2011. The loss of tax revenue, growing unemployment benefit costs and economic stimulus packages have boosted the budget deficit to 11.4 per cent of GDP, one of the highest in the EU. Portugal is not doing too well either with its credit rating already downgraded by international financers and its 2009 budget deficit reaching 9.3% of the GDP. It is also suffering from unequal income distribution and hence any attempt by the government to increase taxes is not being met with a positive public response. 

Despite the problems at hand, Europe is not on the verge of a break-up and hence all the conspiracy theories can be kept at bay. Properly timed plans and policies which have already been initiated by Germany and other countries may well quell the recent crises and bring about a sort of calmness to the market. But the recent crisis was surely a dress-rehearsal of sorts, something which may well explode out of proportion in the future. The single currency model was hyped for a long time and sections of the financial sectors had warned of its problems, but to no avail. The single-currency domain was seen as a field to construct a strong and huge economic bloc which would easily repel the free-market capitalists and their volatile behavior. But this myth was broken during the global meltdown and the EU was forced to face the brunt of a global financial collapse. 

The problem is that the lack of a common regulator amongst these 16 countries has forced them to fall into a situation which is seeing serious question marks being raised against the Euro. The countries have actually failed to understand the real economics behind having a common currency and hence their plans, while initiating the single-currency regime, were based on more political overtures rather than economic common sense. The UK, despite its late entry into the ‘group’, still faces problems regarding the strength of the pound and two years after the fall of the Lehman Brothers, has failed to find a solution to the real problem behind its economic woes. When the whole concept of the common currency was formed these countries did not account for an inability to cope with the expectations of this common currency. The Greek tragedy is an excellent example of the same. There are suggestions to install a mechanism which will overlook the budgetary reforms of every country and hence propose a common budget for all these countries. This maybe a step in the right direction; but will the people of these countries allow someone sitting in Brussels to dictate tax reforms? That’s a question which only time can answer.