International Journal of Business and Social Science Vol. 2 No. 12; July 2011 120 Contagious Effects of Greece Crisis on Euro-Zone States Muhammad Akram, Humna Sajjad, Tooba Fatima, Sidra Mukhtar & Hassan Mobeen Alam* Hailey College of Commerce, University of the Punjab, Lahore – Pakistan E-mail: hassanmobeen.hcc.pu.edu.pk@gmail.com * Abstract The purpose of this study is to deeply examine the contagious effects of Greece financial crisis on other European countries. Furthermore, aim of this study is also extended to see how a common currency plays a part to make this crisis worst. Although Greece is the member of Euro-Zone and since November 2009 it is obvious that the main reason of this crisis was the fall of budget deficit and public debt. Greek government feel like millions to accept the rescue plans designed and financed by the IMF and European Union. Many austerity packages were floated and implemented during crisis period. This paper showed that global imbalances and financial crisis are the invention of common causes. The approach adopted in this paper is to answer the questions like “which domestic & international factors provide basis for this crisis?”, “how this crisis became threatened for the Euro states?”, “How this crisis can be dangerous in global perspective?” and “What measure the Greek government should take to cope with this crisis?”. For this purposed related literature has been incorporated. The associated factors of this crisis were the Governments inefficiency, high external debt ratio, common currency, non cooperative behavior from other countries, corrupt politicians. Recently developed long past time series on public debt, along with modern figures on external debts, allows a deeper study of the cycle causal successive debt and banking crisis. The facts confirms a strong relation between banking crisis and sovereign evasion crosswise the financial history of great many countries, advanced and emerging alike. The study may serve as the foundation of future study in terms of devaluation of Euro to cope with this crisis. Devaluation of currency provides the bases of political stability, economic growth and boosting exports which helps to undertake this crisis. Key Words: Current account deficit, financial crisis, financial reforms, global imbalances, sovereign debt crisis. 1. Introduction Greece is a developed country having better living standard and human development index. Greece is on 25th rank among the world countries and 33 rd in parity during 2007-2008 as data provided by IMF. At that time tourism, shipping, food and tobacco processing, textile, mining and petroleum were the main industries. European currency arose at 1999 but Greece joined Euro on 1st January 2001 (Eurostat, 2010). After adopting Euro as its currency Greece became 12th member state of Euro-Zone.The Greece governments default on their debt obligations become the cause of financial crisis. Financial crisis pushes many governments into default through economic downtrend, short administration revenues, lengthening government deficits and elevated intensity of debts. Presently, Greece is facing "Sovereign Debt crisis" (Belkin, 2010). Due to Greece debt crisis, the Euro status was at stake. According to Expert opinion, Greece should give up Euro and join another national currency to avoid this crisis. United States and EU have a strong trade relation that’s why instability in Greek economy can effect "U.S" economic position. In order to protect the other Euro-Zone member states like Spain, Italy and Portugal from this infectious crisis, Euro-Zone members and IMF proposed financial packages to Greece. Greece debt crisis originated various questions regarding the fixation of responsibility of this crisis which must be answered and the methodology adopted for this study is also to answer the various questions regarding this issues. This study provides the answers to the following research questions. RQ1: which domestic & international factors provide basis for this crisis? RQ2: How this crisis became threatened for the Euro states? RQ3: How this crisis can be dangerous in global perspective? RQ4: What measure the Greek government should take to cope with this crisis? 2. Economy of Greece before crisis A new epoch begins when Greece entered as Euro-Zone member state. Although in mid 1990’s Greece had faced many difficulties related to structure. When Greece government paced attention to fiscal administration & regulation, the Greek economy which was facing financial & economic shocks gradually moves towards the betterment.