Greece n World
If we go into the past we can find that whole of Europe is on war with itself, countries of same continent fighting with each other for the supremacy over them. This made doing business with other countries difficult since there are a lot of barriers in the way, such as exorbitant fees for the exchange of currency and high tariff rates. But after worldwar2 the economic position of Europe was down fallen and the living conditions of Europeans was very low. So there is need for economic revival in Europe,this made the trade barriers between countries to breakdown and made doing business easier.As the years passed for more development they formed the European Union with 28 member states and later they altogether had same currency known as Euro. The members of this union had agreed to have a common monetary policy (monetary policy deals with the rate of interest's lend to someone). Though there was common monetary policy there wasn't a common fiscal policy(fiscal policy deals with the taxes collected and amount of spending), countries thought that they will be deprived of sovereignty if they have common fiscal policy.
Now if we take a look into Greece,it gained its independence from Ottoman empire with the aid from other European countries like the United Kingdom,France,Russia. From then Greece was ruled by it's own men and the financial position was pretty better than now.Greece generally depends upon shipping and tourism industry. Agriculture has a very little to do in it's economy. After ww2 it started spending more on people, by creating jobs, increase in pensions and on public welfare. We can say that there may be some political opportunism behind it, but the real picture is that,Greece started spending more than that it's getting in the form of taxes.So to get that extra money Greece started borrowing from other banks. But this borrowing was limited since they were offered money with high interest rates. But as soon as the EU was formed and the common currency Euro came into existence Greek's were lured to become the member of the EU, because of the borrowings offered by the EU,the ECB and the IMF for low interest rates. So Greece became a member of the EU in the year 2000, this made Greece to have access to borrow large sum's for very little interest rates. Here comes the problem, Greece in spite of having 11 million population, the tax payers were very less and there's a lot of tax evasion. So in spite of having less income the government didn't cut it spendings, so to keep on these spending's going, Greek's started borrowing more, but the debt wasn't cleared because of less income to government.
Germany was in a good economic position than the other EU members, so German bank's were the leading lenders to Greece than followed by the ECB and then the IMF. Greece was in a good position until 2008 recession which hit all the major economies very badly. Due to this all the German banks stalled the lending's to Greece and suddenly there was dis-functioning in Greek's economy. All the bank's which had lend Greece started asking for the payment of that debt. But Greece was in no way to pay that debt and there was no new lender to make Greece pay it's debt. Now the situation got worse, to pay up it's debt Greece started cutting it's spending's which agonised all it's citizen's. Cutting spending's means reducing number of jobs, a cut in the welfare activities and a cut in the pension funds. People were infuriated by this and they got onto the streets and started to protest against the government. So government got alert by this and took their decision back. But the problem wasn't over there was a debt to pay and slowly the economy started crumbling and the government started to move towards default(means empty resources for proper functioning, bankruptcy in case of corporations). To control the situation government introduced bonds with high interest rates to attract private investment, but the credit rating companies have credited CCC to Greece bonds enough to discourage investors.
How to get out?
There are two ways for Greece to get out of this situation
1) To opt for a bailout which the European countries have framed out. Greece agreed to this and got a bailout of 110 billion Euros and also got some reforms to implement, which are also framed out by it's members.The reforms stated to implement a) austerity measures b )to privatise all the government assets c) structural reforms. Right wing Greece government at that time agreed to all these measures and took the bailout. But in later years the economy was still crumbling down and the need has come for the second bailout. The European members also agreed for this and framed out for second bailout of 130 billion Euro with the same reforms to be implemented more vigorously . They also found out that the reforms agreed by Greece for the first bailout were being implemented at slow pace, so they insisted that the reforms should be implemented more vigorously. But something miracle happened in January 2015, the Greek's sought for a change in government and elected left wing syriza party and Alexis Tsiparis as their prime minister. This new government said that they were against anti-austerity reforms which is the main point in their manifesto and for which they got elected by Greek's. So now they were steadfast on this decision, which infuriated the EU members and mainly Germany which has lend Greece a lot. So the members decided to stall the bailout money, which led Greece's economy to degrade further.
2) To exit from the European Union which is known as 'GREXIT' is another option. Both Greece and the EU doesn't want this to happen, but if the talks between the EU and Greece fail to come to a common consensus this would be the only option left for Greece. What happens if Greece leave the EU? This question itself infuriates all the world economies and tumbles down their stock markets. If Greece decides to exit, then it had to change it's currency from Euro to it's former currency Drachma at a debased rate. This move will make the ECB to hold all the Greece debts and also damage other European economies because a lot of countries had invested in Greece and they may lose what they have invested, as the European economies tumbles the world economies will also go down as the European countries account for 25% of the world trade. The value of Euro gets degraded and the foreign investors may liquidate their assets any make it to flow out of Europe, not only foreign investors even the people may withdraw their savings and convert them into other currencies. Another thing which is likely to happen is the exit of other EU members like Portugal,Spain,Italy and Ireland whose economies are following the Greek's path, so this may make the future of the EU doubtful and may even disintegrate the entire union. So the mark of common currency may come to an end. By this Greece also faces big difficulty, by introducing Drachma at a debased rate the inflation may rise and if Greece tries to print money this problem even rises to new level which makes it difficult for the people to sustain and ultimately lead to riots and collapse of government.
There is also another way to get out of this situation that is to accept the austerity reforms proposed by the European members which is not likely to happen because Greek's don't want these reforms and the new government also don't like to implement these and by any chance if they choose to implement it would be the end of that government.
So Greek's don't agree for the first option and the EU doesn't want the second one to happen, so there must be common agreement between two sides to get outside this situation.
Opinion
For Greece to get out of this hitch austerity is not the only solution and i think that austerity reforms would even degrade the situation. It is simple that if the government stops spending on public then the earnings of public would fall then automatically the taxes collected would also fall down and in return the payment of debt would become a problem. So instead of emphasizing on the austerity both sides can make out other solutions which can make people of Greece have a better life and make Greece to revive to it's former position where it's economy would function smoothly.
This is just an overview of the situation and if the readers find anything objectionable they can comment on this so that i can come to know about it.
Germany was in a good economic position than the other EU members, so German bank's were the leading lenders to Greece than followed by the ECB and then the IMF. Greece was in a good position until 2008 recession which hit all the major economies very badly. Due to this all the German banks stalled the lending's to Greece and suddenly there was dis-functioning in Greek's economy. All the bank's which had lend Greece started asking for the payment of that debt. But Greece was in no way to pay that debt and there was no new lender to make Greece pay it's debt. Now the situation got worse, to pay up it's debt Greece started cutting it's spending's which agonised all it's citizen's. Cutting spending's means reducing number of jobs, a cut in the welfare activities and a cut in the pension funds. People were infuriated by this and they got onto the streets and started to protest against the government. So government got alert by this and took their decision back. But the problem wasn't over there was a debt to pay and slowly the economy started crumbling and the government started to move towards default(means empty resources for proper functioning, bankruptcy in case of corporations). To control the situation government introduced bonds with high interest rates to attract private investment, but the credit rating companies have credited CCC to Greece bonds enough to discourage investors.
How to get out?
There are two ways for Greece to get out of this situation
1) To opt for a bailout which the European countries have framed out. Greece agreed to this and got a bailout of 110 billion Euros and also got some reforms to implement, which are also framed out by it's members.The reforms stated to implement a) austerity measures b )to privatise all the government assets c) structural reforms. Right wing Greece government at that time agreed to all these measures and took the bailout. But in later years the economy was still crumbling down and the need has come for the second bailout. The European members also agreed for this and framed out for second bailout of 130 billion Euro with the same reforms to be implemented more vigorously . They also found out that the reforms agreed by Greece for the first bailout were being implemented at slow pace, so they insisted that the reforms should be implemented more vigorously. But something miracle happened in January 2015, the Greek's sought for a change in government and elected left wing syriza party and Alexis Tsiparis as their prime minister. This new government said that they were against anti-austerity reforms which is the main point in their manifesto and for which they got elected by Greek's. So now they were steadfast on this decision, which infuriated the EU members and mainly Germany which has lend Greece a lot. So the members decided to stall the bailout money, which led Greece's economy to degrade further.
2) To exit from the European Union which is known as 'GREXIT' is another option. Both Greece and the EU doesn't want this to happen, but if the talks between the EU and Greece fail to come to a common consensus this would be the only option left for Greece. What happens if Greece leave the EU? This question itself infuriates all the world economies and tumbles down their stock markets. If Greece decides to exit, then it had to change it's currency from Euro to it's former currency Drachma at a debased rate. This move will make the ECB to hold all the Greece debts and also damage other European economies because a lot of countries had invested in Greece and they may lose what they have invested, as the European economies tumbles the world economies will also go down as the European countries account for 25% of the world trade. The value of Euro gets degraded and the foreign investors may liquidate their assets any make it to flow out of Europe, not only foreign investors even the people may withdraw their savings and convert them into other currencies. Another thing which is likely to happen is the exit of other EU members like Portugal,Spain,Italy and Ireland whose economies are following the Greek's path, so this may make the future of the EU doubtful and may even disintegrate the entire union. So the mark of common currency may come to an end. By this Greece also faces big difficulty, by introducing Drachma at a debased rate the inflation may rise and if Greece tries to print money this problem even rises to new level which makes it difficult for the people to sustain and ultimately lead to riots and collapse of government.
There is also another way to get out of this situation that is to accept the austerity reforms proposed by the European members which is not likely to happen because Greek's don't want these reforms and the new government also don't like to implement these and by any chance if they choose to implement it would be the end of that government.
So Greek's don't agree for the first option and the EU doesn't want the second one to happen, so there must be common agreement between two sides to get outside this situation.
Opinion
For Greece to get out of this hitch austerity is not the only solution and i think that austerity reforms would even degrade the situation. It is simple that if the government stops spending on public then the earnings of public would fall then automatically the taxes collected would also fall down and in return the payment of debt would become a problem. So instead of emphasizing on the austerity both sides can make out other solutions which can make people of Greece have a better life and make Greece to revive to it's former position where it's economy would function smoothly.
This is just an overview of the situation and if the readers find anything objectionable they can comment on this so that i can come to know about it.
