4 Lessons from The Greek Currency Crisis
As the Greek government struggles with the political realities of austerity measures as well as riots, demonstrations, and a general sense of anxiety among Greek society – the Greek banking system faces a significant currency crisis.
Specifically, Greek banks are having a hard time maintaining currency holdings because many Greek citizens have rushed to the bank to withdraw their savings, fearful that the banks will collapse and take savings with them. While this crisis is ongoing and far from resolved, there are some lessons we can learn:
1. Faith in the Banking System is Paramount
The Greeks have lost all faith in their banking system and are withdrawing millions of Euros every day. This in turn places the banks in jeopardy, as they depend on currency reserves for cash flow…especially in these difficult economic times where many loans are in default. The Greek government didn’t do enough to foster a sense of confidence in the banking system.
2. The Importance of Speed and Decisiveness
One of the criticisms that has been leveled at the European Union is that they waited too long to deliver a rescue package to Greece. Because of the delay, the costs of the rescue package are now larger than they might have been. If, for example, the EU had encouraged some creditors to forgive a portion of Greece’s debts sooner, the Greek government might have been able to meet their remaining obligations without triggering a panic.
The lesson here is to be proactive when it comes to large economic issues.
3. Regulation Isn’t Always Bad
There is often a fine line between having too much bureaucracy and having too little. If the European Union had more regulations in place prior to the Greek economic collapse – specifically rules that dictated how to respond to economic threats – the region might be better off right now. Instead, European leaders had to solve this crisis while also addressing political concerns in their homeland.
Regulations would have forced all members of the EU to respond without dragging the process through the proverbial political mud.
4. Unions Are Sacrosanct
One of the lessons of marriage is that marital happiness is a two-way street – marriage doesn’t work unless both parties recognize that they are inherently partners.
Unfortunately, numerous parts in the Greek currency crisis – from the leadership in Germany and France to the Greek public – have failed to recognize that membership in the European Union may require sacrifice. Essential austerity measures are being actively rejected by segments of the Greek population. Simultaneously, members of the numerous European legislatures are arguing to abandon Greece and leave them to their own devices.
What seems to be lost on all parties is that rejecting the obligations of the EU will quickly bring the Union – and all the benefits that come with it – to an end. As Abraham Lincoln once said, “May our children and our children’s children…enjoy the benefits of the united country.” Lincoln’s point should not be lost on anyone – once a union is created. It should not ever be taken for granted.
P.S.: What lesson do you get from Greece crisis?