Greek debt crisis explained!!

Greece is currently in the toughest situations it has ever faced .All its economic policies are in vain.It is also described as the greatest depression in the world economy. This also raised a million dollar question of Greece leaving the Euro zone.

greece crisis explained

 

 

Why is Greece in trouble?greece_crisis_crush_the_euro_822375

Europe is a continent of trade barriers, wars, tariffs and different currencies. Doing business across borders was difficult. The European Union (EU) formed made it easy for doing business. In 1999 euro became a single currency among different countries which included Greece and the countries accepted to the become a part of Euro area with European central bank (ECB).

 

When it comes to Greece, its spending is always high far more than its earning even before it joined the euro. After it adopted the euro its spending increased drastically. The government also made huge debts for paying 2004 Athens Olympics. So, after years of overspending, its budget deficit – the difference between spending and income – spiraled out of control and the government gave up.

Moreover much of their borrowings were concealed. When the global financial downturn hit – and Greece’s hidden borrowings came to light. This continued and debt level reached the point where the country no longer able to repay them and was forced to ask for help from its European partners and the IMF in the form of massive loans.

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Measures taken to help Greece

In May 2010, the European Union and IMF provided 110bn euros of bailout loans to Greece to help the government pay its creditors. As this wasn’t enough a second bailout loan of 130bn euros was also agreed this year. They also agreed to replace existing loans with new loans at a lower rate of interest.

However, in return for all this help, the EU and IMF insisted that Greece embark on a major austerity drive involving drastic spending cuts, tax rises, and labor market and pension reforms.

countries most exposed to Greece crisis

But many commentators believe that even the combined 240bn euros of loans and the debt write-off will not be enough.

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recently appointed Greece financial minister-Yanis Varoufakis

Why was austerity measures needed?

If austerity measures slowed the Greek economy and made it more difficult to repay the debt, why were they needed? First, ratings agencies wanted to make sure Greece wouldn’t just take on new debt to pay off the old.

Second, Germany and other EU leaders had successfully used austerity measures to strengthen their own economies.

By following the austerity measures, Greece improved how it managed its public finances and its financial statistics and reporting. It also reformed its labor market and pension system, and lowered trade barriers.

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What happens if Greece quits the euro zone?

Greece is on the opinion of quitting euro zone which they earlier joined in 2001 and led to the crisis but now if they abandon the euro and stick back to the previous currency drachma it could get rid of this hated austerity measures and could print its own currency. Thereby lowering its exchange rate value of its debt. This could have bad impact on the investors and many banks could go bankrupt.

A homeless man begs at the central Syntagma (Constitution) Square in Athens     poor1

current situation in Greece.

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What happens if Greece fails to clear the debt?

A Greek default would have a more immediate effect. First, Greek banks already on the edge would go bankrupt. Next, losses would threaten the solvency of other European banks, particularly in Germany and France. Even worse, the EU’s central bank (ECB)  holds a lot of Greek and other sovereign debt. If Greece defaults, it could put the future of the ECB at risk. Other indebted countries might decide, or be forced, to default. Without a central bank to bail them out, the EU itself may not survive.

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people on riots over the government due to crisis

 

references: bbc , ft times,greekcrisis.

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