Greece Debt Crisis – The downfall of a rich economy

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Is the world going to face another recession? It seems to be predictably true from Greece's situation. To avert Greece's high income economy from collapsing it has to pay $1.8 billion (1.6 billion euro) to the International Monetary Fund and the European Central Bank before the bailout program collapses on Tuesday. Since Greece is a high income country with high living standards and owning one of the largest shipping industry it can very effectively affect other economies across the world.

Lets look at Greece's background initially.
How did Greece become one of the greatest countries on the planet?

Greece defined Democracy. It was the birthplace of democracy. Greece is the creator of Olympic Games. They are the one of few founding members of the United Nations. Western Philosophy and Literature were principled in Greece. Many scientific and mathematical principles were written here. Their cultural and technological achievements have been influencing the whole world since a long time. Their roots spread across the East through Alexander the Great and into the West through the Roman Empire. Greece also has a rich legacy. It is reflected in the 17 UNESCO World Heritage sites, which is the most in any country in Europe.

Greece is a member of many international organizations. It joined the European Union in 2001. It is a member of Council of Europe, NATO, World Trade Organization, OECD and many others. Greece also owns the largest chunk of the shipping industry (16.5% of total shipping industry) making it a rich country with high per-capita income. It boasts a large and a diversified economy.



Greece's lenders share … Source: IMF
Why did Greece fail then?

When the Wall Street imploded Greece became the epicenter of the European Crisis. In October 2009 Greece warned of its increasing deficit and anytime banks could go bankrupt which would set stage for another financial crisis. Greece was suddenly stopped from borrowing from financial markets. The world which was already reeling under heavy financial crisis, the European Central Bank and International Monetary Fund came forward to support a bailout program. The bailout handed Greece around $264 billion (about 240 billion euros). Nothing comes for free, the lenders mainly Germany imposed strict and harsh austerity measures in Greece. They forced for opening up the markets in Greece to make it more business friendly. The conditions were such that Greece should decrease budget spending but increase taxes.




Greece's GDP and Unemployment figures across Europe.
What went wrong though Greece received billions of dollars?

The bailout was supposed to clean up Greece's financial problems. It also helped quell market fears about the Eurozone splitting up. Even then Greece's problems were not over. The economy has shrunk by a quarter in 5 years. The bailout money was mostly used to pay Greece's international debt and hardly any money was left to pump in to the market. The government still has a staggering debt internationally and also to International Monetary fund. Unless Greece pays $1.8 billion by Tuesday (30th June 2015), IMF will not release the next bailout money.
What happens next?

If Greece has to receive the next bailout package it conditionally has to pay $1.8 billion to IMF and European Central Bank. Many say that the Tuesday deadline is only to up the ante on Greece for creating tension and indirectly convey it to toe the line. Meanwhile Greece Prime Minister Alexis Tsipras has called for a referendum to vote by people whether the conditions of the bailout such as tax increase, budget cuts would be acceptable. If citizens vote for a "NO" then there are good chances that Greece might fallout with Eurozone creating shocks across the world eventually leading into a bigger financial crisis than the 2008 recession. If voted for "YES" then possibilities include Greece digging its own pit. So this test would decide whether Greece will stay in Eurozone or quit. If talks with Eurozone fail then Greece could approach China or Russia for borrowing money.

The Greece Debt Crisis seems to have no end. Lets hope whatever happens in Greece is for its good and prosperity.

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About the Author

Sumanth Mudigonda

Hi, Sumanth here! I am a blogger. I write articles related to International Diplomacy, GLobal Affairs, Business. I am an avid reader of...