With the currency bloc anchored by econom heavyweights Germany and France and a

With the currency bloc anchored by econom

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contributing factor in Greece’s buildup of debt. With the currency bloc anchored by economic heavyweights Germany and France, and a common monetary policy conservatively managed by the ECB, investors have tended to view the reliability of euro member countries with a heightened degree of confidence. The perceptions of stability conferred by euro membership allowed Greece, as well as other Eurozone members, to borrow at a more favorable interest rate than would likely have been the case outside the EU, making it easier to finance the state budget and service existing debt. This benefit, however, may also have contributed to Greece’s current debt problems: observers argue that access to artificially cheap credit allowed Greece to accumulate high levels of debt. Critics assert that if the market had discouraged excess borrowing by making debt financing more expensive, Greece would have been forced to come to terms earlier with the need for austerity and reform. 8
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Issues with EU Rules Enforcement The lack of enforcement of the Stability and Growth Pact is also seen as a contributing factor to Greece’s high level of debt. In 1997, EU members adopted the Stability and Growth Pact, an agreement to enhance the surveillance and enforcement of the public finance rules set out in the 1992 Maastricht Treaty’s “convergence criteria” for EMU. The rules call for government budget deficits not to exceed 3% of GDP and public debt not to exceed 60% of GDP. The 1997 Stability and Growth Pact clarified and sped up the excessive deficit procedure to be applied to member states that surpassed the deficit limit. If the member state is deemed to have insufficiently complied with the corrective measures recommended by the European Commission and the Council of the European Union during the excessive deficit procedure, the process may ultimately result in a fine of as much as 0.5% of GDP. Following the launch of the euro in 1999, an increasing number of member states found it hard to comply with the limits set by the Pact. Since 2003, more than 30 excessive deficit procedures have been undertaken, with the EU reprimanding member states and pressuring them to consolidate public finances, or at least promise to do so. The EU, however, has never imposed a financial sanction against any member state for violating the deficit limit. The lack of enforcement of the Stability and Growth Pact is thought to have limited the role the EU can play in discouraging countries, like Greece, from running up high levels of debt. The European Commission initiated an excessive deficit procedure against Greece in 2004 when Greece reported an upward revision of its 2003 budget deficit figure to 3.2% of GDP. In its report, the Commission indicated that “the quality of public data is not satisfactory,” noting that the EU’s statistical office, Eurostat, had not certified or had unilaterally amended data provided by the National Statistical Service of Greece since 2000. Subsequent statistical revisions between 2004 and 2007 revealed that Greece had violated the 3% limit in every year since 2000, with its deficit topping out at 7.9% of GDP in 2004. The Commission also
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