The reason why Greece and Spain are in the Eurozone

The Eurozone, which is also called the European Monetary Union (EMU), was created in order to stimulate trade among European countries. Some advanced countries, such as the UK, and many Scandinavian countries did not choose to join the EMU because of the disharmony in their business cycle with the Eurozone economy. When there is a disharmony among the monetary union members, sharing a common currency disturbs all economies in the monetary union. As there has already been a frequent trade between nations, these nations benefit more from sharing a common currency because they are able to avoid the price uncertainty caused by the exchange rate mechanism. However, if there is not a frequent trade between nations, although sharing a common currency may increase a trade between them, it is rather a disadvantage because it disables setting their own interest rate and the volume of money supply.

Some new members from the Eastern Europe, the former communist nations, have not fulfilled the conditions to be a part of the EMU. In order to join the EMU, the fiscal structure has to be organised in order to reduce the risk of increasing the national debt and the price inflation caused by the Seigniorage effect (increasing money supply to pay for the government budget deficit). They are required to balance their budget balance without relying on the national debt and the Seigniorage effect in order to harmonise their business cycle to the Eurozone economy.


Nevertheless, there is a question arising from the current crisis caused by the negative systemic shock caused by the world financial crisis. The crisis in Greece became permanent. Greece is a typical country which has been relying on filling her budget deficit by the national debt and the Seigniorage effect due to the poorly organised fiscal structure (though it is mainly caused by her geographic nature).

As a matter of fact, Greece has never been ready to join the monetary union. Greece has had a large proportion of the international trade partners from outside the EU on the top of their fiscal structure. Therefore, joining the EMU was a disadvantage rather than an advantage. Nonetheless, the EU accepted Greece to join the EMU although the EU hardly accepts many Eastern European countries whose level of the economic structural problem is the same as or slightly less than the Greek one.

This reason shall be political rather than economical. As same as German Third Empire led by Adolf Hitler thought of Ancient Greece as an origine of European civilisation so that they claimed that German was highly influenced by Ancient Greece as well. Both Germany Third Empire and the EU seem to seek Greece as their "holy-land" as the origine of their civilisation. Therefore, including Greece into their political peer group may prove that their peer political group has a long history.



On the other hand, Spain has had an economical advantage to join the EMU unlike Greece. Spain has a large proportion of the international trade with the EU nations. For example, the investment into Spanish property market by North Western European nations is vital. Spanish tourist industry is her prominent export business. There is a significant demand for Spanish tourist from the European nations.

However, the problem of Spain for joining the EMU is a disharmony of the business cycle between Spain and the rest of the Eurozone countries. Spanish economy excessively expanded so that the positive output gap was excessively big. This factor perpetuated the negative affect of the world economic crisis. When the positive output gap has been expanded so much, as the economy started to go into the downturn the speed of decline becomes too fast. Therefore, it is easier for Spainish business cycle to result in the hard-landing so that it ends up with creating the huge negative output gap. This dramatic change would have been able to be avoided if Spain had had an autonomy in controlling their fiscal policy, especially for her national debt, and the monetary policy (the interest rate and the money supply).