I The problem
Adoption of a common currency in Europe
In the 1990's the major European countries decided to have a common currency. They carried out their plan in two steps, first for business transactions in 1999, and then for all citizens, beginning January 1st, 2002. In broad outline, countries set aside the currencies they each were using previously and instead dealt themselves euros. From then on the so-called eurozone had a single currency, a "unique money". In the 2000's Greece and other countries joined the group. Greece undertook the same operation. It relinquished its drachmas and received an equivalent amount of euros. We explain below technically the issuance of a new currency, but for the time being what's important is the result. Henceforth Greek firms and Greek citizens could buy goods and services anywhere in the eurozone with their euros. Let's see how this lead to the present monetary crisis, and what is likely to happen next.
Continued Greek budget and trade deficits, borrowing euros
To understand the problem of Greece, we ought to distinguish monetary flows within the country from those across borders. They entail different accounting records, liabilities and problems. And within the country, let's focus on one very special economic agent, the government, the revenues of which normally come from taxes. * Within the country: the Greek government kept its economic policy which consisted in spending more than it received from taxes and minor state entrepreneurial activities, and, in the past, printing drachmas to make up for its budget deficits. It amounts to a fiscal and monetary policy where tax revenues are produced with the printing press (producing bank notes or bonds). Some countries prefer this system to price stability, which has other advantages and drawbacks. * Across Greek borders (1): The Greek government began to borrow euros