The idea of a common currency and thus the currency union is the extreme form of economic integration-text books will teach you. It is just short of a political union. When Europe, with shared history, culture, language and ethnicity; has gone for a common currency, the world looked the endeavor with curiosity and admiration.
The profile of EMU (European Monetary Union) was interesting. It was notable from the absence of Britain. The Union was rich with the lead role of France who was the political power and Germany- the economic power of the continent. Understandably Britain will have a lesser role and hence opted out.
But when the currency is now fifteen years old, it is facing the first exit- an unpleasant event for the union. Greece is finding it tough to continue with its debt oriented economy management within the currency union.
The current crisis of Euro was neither unexpected nor unpredicted. Many academicians have warned that asymmetric development stage of the members and their fiscal and monetary requirements may cause disturbance.
Coming back to the Greek crisis, the successive governments have shown little courage to introduce some discipline. Debt without adequate revenue and excess expenditure is the simplest explanation of the Greek problem.
Athens has always poured socialist ideas to cover up its economic mismanagement. Outside or inside the Euro zone, Greece can’t continue without bringing substantial reforms.
For Euro zone, they would not like to see an exit by Greece as it will be an early one for the fifteen year old arrangement. Germany and France know that Greek financial discipline is so week and it may encourage other countries like Spain and Italy to resort to excessive debt if Athens is provided a free bailout.
Similarly, the EMU as a currency union is an economic and nationalist arrangement. Any economic integration will be a mix of economics and nationalism. For Europe, Greece has antiquity value and members don’t like to see a Greek exit.
Greece on the other knows that Euro zone would not like to see its exit and the ‘potential defaulter’ and ‘exit’ tag gives it a bargaining power. In this scenario, it becomes a sovereign moral hazard of the Euro zone.
A Greek default thus becomes remote possibility and it may not get out of the EMU. Certainly, European Union will come out with a rescue package, to keep Greece in the currency union. But it will be made by ensuring other debt sovereigns like Italy and Spain will not get any motivation from the Greek bailout process.