What effect did Greece being a member of the EU have on its debt crisis?

The impression I got was that it limited what options it had, such as not being able to default on its debts. Is this accurate? Also, did being a member of the EU give any benefits with regards to government debt, and if so, what were they?

  • THe main issue was beeing member of €-zone
    – Olav
    Sep 13, 2016 at 14:25

2 Answers 2


Part of being in the EU is shared fiscal policy and shared currency. This meant that Greece couldn't devalue their currency and inflate the debt away. Its somewhat debatable, if doing so would have been a good thing since its possible for a country to create hyperinflation in their attempt to inflate debt away.

Greece still could have defaulted on their debt, but that would cause major fallout even if it weren't in the EU. The EU would likely have been stuck with paying Greece's debt or facing collapse of the euro and creating sanctions for Greece as a result.

Up until the crisis Greece was getting a huge benefit from being in the EU, that allowed them to go much further into debt than would have been allowed were they not a member of the EU. Greece was allowed to take on debt at a far lower interest rate than it otherwise would have been able to get. This is because the EU is interconnected enough that there is some guarantee that if Greece were to fail other members would have to bail them out.

  • 2
    I think this is correct but it could really be improved with some references that back up what you are saying Sep 13, 2016 at 15:39

Also, did being a member of the EU give any benefits with regards to government debt, and if so, what were they?


It's not that it couldn't default on its debts. It's that defaulting on its debts would have had a cascading effect on the European Union (EU). So the EU kept bailing them out just enough to keep them from defaulting on their debts.

Another reason why the EU bailed out Greece is that many of the debts were owed to citizens of EU countries outside Greece. Since Greece debt was denominated in euros, it was easier for EU investors to buy than if it had been denominated in drachmas. If Greek debt had been mostly owned by Greeks and the rest of the world, there would have been less pressure on the EU to bail them out.

And if you want to argue that Greece could have avoided austerity with a default, remember how it got the debts in the first place. It was running a persistent, structural deficit. A structural deficit is one where even if it magically eliminated its debt payments, it still didn't have enough revenue to cover current expenses. It needed the bailouts just to be able to phase in austerity. Without them, austerity would have been worse.

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