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Germany, Greece and Existing Debt

            There are a few reasons that I came up with on why the German government continues to loan Greece money. It seems to me that a major part of their continued financial support is due to the fact that they have a lot at risk if the Greek economic situation deteriorates further. It's no secret that the Greeks have had trouble repaying their debts but I think Germany realizes it is in their best interest to continue to loan to them. Germany and other Northern European economies are somewhat stuck in a tricky situation here. They have been providing loans to the Greek government and its difficult to just stop. They have incentive to keep loaning to them due to the fact that they started loaning to them and it becomes a pretty vicious cycle. The Germans continue to loan to the Greeks because they share a currency and they are a monetary union. Since they are members of the Eurozone, Greece can't just print money to spend like the United States is able to do. Due to the shared Euro, a further Greek deterioration could affect the German banks and cause their currency value to drop. This would decrease asset value in real terms and would increase the costs of necessary parts of their economy for example energy. .
             This is why other Northern European economies such as France, Belgium and Netherlands all hold Greek debt as well. Allowing their economy to deteriorate further would lead to a drop in international confidence in both the Euro and the Eurozone economy. As we know confidence is a huge part of the markets and a lack of confidence is not something the Germans and other European nations want to have to worry about. It can be argued that the Germans might feel a certain responsibility for the Greek debt crisis. Critics have accused the German government of hypocrisy. Some also believe that they pursued their own national interests by unwillingly adjusting fiscal policy to help correct the Eurozone crisis.


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