You've probably heard about Greece’s debt crisis in the news over the past five years. Let’s look at what the recent “No” vote means for Greece and the rest of the European continent.
Recent Updates In The Debt Crisis
For the past five years eurozone leaders have been discussing how to save Greece. After the country’s citizens voted to reject the terms of a bailout by European creditors, Greece is closer to leaving the 19-nation eurozone and losing the shared currency. The move could not only affect the region but the rest of the world’s financial stability.
Prime Minister Alexis Tsipras of Greece is meeting with leaders of several of the country’s political parties to develop a new plan for negotiating with creditors. Mr. Tsipras argued that to reject the bailout would give the country a more bargaining power. His theory is based on the premise that Greece leaving the eurozone would be too harmful to the continent.
Following the no vote Yanis Varoufakis, the country’s finance minister, resigned on Monday. Varoufakis was critical in rallying no votes, but his resignation appeared to be one of the earliest steps towards conciliation towards the country’s creditors.
How Did Greece Get To This Point?
After the debt crisis in 2008, Greece announced it had been understating its deficit in October 2009. The announcement raised concerns about the stability of country’s finances and was shut out of borrowing in the financial markets. In 2010, Greece began to move towards bankruptcy which threatened to start a new financial crisis.
To avert a financial collapse the International Monetary Fund, the European Central Bank, and the European Commission issued the first of two international bailouts for Greece, which totaled more than $264 billion. The bailouts came with steep austerity terms such as deep budget cuts, tax increases, ending tax evasion and making Greece easier to do business with.
Did Greece Default On Its $1.7 Billion Debt?
Technically Greece has defaulted on its payment, as with any borrower that does not make its payment it has defaulted. However, the International Monetary Fund does not use the word default rather says Greece is in what it calls arrears. Other Greek debts may be classified as being in default.
Whatever you call the failure to make a payment, it will have serious effects on the country’s economy and relation with other nations. Such failure will affect uncertainty for lenders, upset financial markets, and hurt economic activity.
What Will The Affect Be On The Global Financial System?
Europe is currently in a union in which most decision-making power rests within 28 national governments - each of which much listen to its voters and taxpayers. The tension between the union and will of the people increased beginning 1999 with the launch of the euro, which binds 19 nations into a single currency monitored by the European Central Bank but leaves budget and tax policy in the control of each country.
Since the beginning of the debt crisis in 2010 most foreign investors and international banks have sold their Greek bonds and other holdings so they will not be affected by what happens in Greece. Also, other countries facing an economic crisis like Portugal, Ireland, and Spain, have taken steps to make sure their economies are less vulnerable to any fallout than they were a few years ago.
Will Greece Be Kicked Out Of The Union?
A few years economists worried that Greece’s problems would spill over to the rest of the world. If Greece exited the eurozone and defaulted on its debt, experts worried it might create global financial shocks bigger than the collapse of Lehman Brothers did.
However, now some believe that if Greece were to leave the union, known as “Grexit”, it would not cause a global financial catastrophe. Many European nations have instituted safeguards to ensure that financial contagions would not harm their economies. And some experts even say both the financial union and Greece would be better off if there were a “Grexit.”
Recent Updates In The Debt Crisis
For the past five years eurozone leaders have been discussing how to save Greece. After the country’s citizens voted to reject the terms of a bailout by European creditors, Greece is closer to leaving the 19-nation eurozone and losing the shared currency. The move could not only affect the region but the rest of the world’s financial stability.
Prime Minister Alexis Tsipras of Greece is meeting with leaders of several of the country’s political parties to develop a new plan for negotiating with creditors. Mr. Tsipras argued that to reject the bailout would give the country a more bargaining power. His theory is based on the premise that Greece leaving the eurozone would be too harmful to the continent.
Following the no vote Yanis Varoufakis, the country’s finance minister, resigned on Monday. Varoufakis was critical in rallying no votes, but his resignation appeared to be one of the earliest steps towards conciliation towards the country’s creditors.
How Did Greece Get To This Point?
After the debt crisis in 2008, Greece announced it had been understating its deficit in October 2009. The announcement raised concerns about the stability of country’s finances and was shut out of borrowing in the financial markets. In 2010, Greece began to move towards bankruptcy which threatened to start a new financial crisis.
To avert a financial collapse the International Monetary Fund, the European Central Bank, and the European Commission issued the first of two international bailouts for Greece, which totaled more than $264 billion. The bailouts came with steep austerity terms such as deep budget cuts, tax increases, ending tax evasion and making Greece easier to do business with.
Did Greece Default On Its $1.7 Billion Debt?
Technically Greece has defaulted on its payment, as with any borrower that does not make its payment it has defaulted. However, the International Monetary Fund does not use the word default rather says Greece is in what it calls arrears. Other Greek debts may be classified as being in default.
Whatever you call the failure to make a payment, it will have serious effects on the country’s economy and relation with other nations. Such failure will affect uncertainty for lenders, upset financial markets, and hurt economic activity.
What Will The Affect Be On The Global Financial System?
Europe is currently in a union in which most decision-making power rests within 28 national governments - each of which much listen to its voters and taxpayers. The tension between the union and will of the people increased beginning 1999 with the launch of the euro, which binds 19 nations into a single currency monitored by the European Central Bank but leaves budget and tax policy in the control of each country.
Since the beginning of the debt crisis in 2010 most foreign investors and international banks have sold their Greek bonds and other holdings so they will not be affected by what happens in Greece. Also, other countries facing an economic crisis like Portugal, Ireland, and Spain, have taken steps to make sure their economies are less vulnerable to any fallout than they were a few years ago.
Will Greece Be Kicked Out Of The Union?
A few years economists worried that Greece’s problems would spill over to the rest of the world. If Greece exited the eurozone and defaulted on its debt, experts worried it might create global financial shocks bigger than the collapse of Lehman Brothers did.
However, now some believe that if Greece were to leave the union, known as “Grexit”, it would not cause a global financial catastrophe. Many European nations have instituted safeguards to ensure that financial contagions would not harm their economies. And some experts even say both the financial union and Greece would be better off if there were a “Grexit.”