Greece will benefit from its current crisis

The global financial crisis has caused four European economies to undergo a real plight and has thoroughly tested the European currency.

The economies of Greece, Spain, Portugal and Ireland exceeded the indexes specified by the Maastricht Treaty of the Single European Currency, which may affect the entire eurozone.

Although many euro economies have surpassed these indexes, including major economies like Germany, France and Italy, their levels remained acceptable in general.

However, in Greece, the situation reached the verge of collapse, with the budget deficit exceeding 12 per cent of the Gross Domestic Product, while the Maastricht Treaty allows three per cent as a maximum.

Tough challenges

Greece's public debt also exceeded 140 per cent, against the 60 per cent allowed by the treaty.

This meant tough challenges for the European currency and caused a drop in the euro exchange rate against other leading currencies of the world.

The European Union (EU) had only two choices, either to drive Greece out of the Euro treaty or to send a strong message to markets that the euro was here to stay and is capable of overcoming the Greek crisis through the solidarity of the monetary union members in particular and the 27 EU members in general.

The EU took a step that has many implications by giving instant support of 20 to 25 billion (Dh124 billion) euros to save the Greek economy, which was facing collapse as a result of some economic and financial policies during the years of cash abundance and the ease of obtaining credit facilities from EU institutions and international finance houses. In fact, the EU's only option was to contain the Greek crisis and prevent it from spreading to other members, especially as a delinquency or bankruptcy announcement would have cost European financial institutions billions of euros.

There is no doubt the financial support extended to various institutions and countries will have to be repaid in full.

The US government is currently recovering the financial support given to banks and financial institutions at the onset of the crisis, while the British government is trying to do the same.

British Prime Minister Gordon Brown said the institutions that had received government support should pay back these amounts down to the last penny.

Similarly, the EU will recover the full amount given to Greece and other countries. Looking back at the economic history of the four countries in question, especially Greece, it was clear their financial situations have always been unstable. Yet, the EU membership of these countries means the strict laws of the EU will be implemented in them, which will benefit these countries and their growth rates in the long run.

The severe financial crisis in Greece will be a beneficial experience for the Greek economy, which will recover thanks to European support.

Greece and the other three stumbling countries are expected to act like other European monetary union members when it comes to their commitment to the good standards and regulations followed in the eurozone, especially when the currency is gaining more strength in global financial markets.

Fortunately for Greece, it is a member of the European Monetary Union, otherwise it would have faced bankruptcy.

The problems of Spain, Portugal and Ireland are less severe than those of Greece, and the EU, with its huge resources, can tackle the problems of these three countries that suffer from big budget deficiencies and accumulation of debts.

The crisis, despite its severity, proved the EU had become a solid reality as a comprehensive economic, trade and monetary zone and can look forward to future horizons that benefit all member countries of this impressive body.

It is worth mentioning the US state of California became jealous of the generous subsidies extended to Greece, compared to the humble financial aid received by California from Washington.

Dr Mohammad Al Asoomi is a UAE economic expert