What you should know
about Greece
Greece crisis is in the news and you should know the nuts
and bolt of what constitute the crisis.
The origin of Greece debt has a long history and it’s almost
a decade old. This Greek melodrama makes dramatic twists and turns, and the
latest string of events included the tussle between the country’s political
masters and the doyens from IMF, European Union and European Central Bank.
The last week developments have been captured by a column in
Market Watch, a financial website, as below:
- Tsipras made the shocking decision Saturday to hold a Greek referendum (mainly centered on the terms Greece would need to agree to in order to be granted some €15.3 billion in funds) set for July 5, five days after the country’s payment to creditors is due.
- Eurozone finance ministers on Saturday turned down a request for an extension of the Tuesday payment to the IMF.
- On Sunday, the European Central Bank capped the level of much-needed emergency funding for Greece’s banking system.
- Greece announces that it will impose capital controls Monday, possibly continuing until the July 5 referendum, according to reports. Greece’s stock market also will be closed. A so-called bank holiday, meant to prevent bank runs, will begin Monday and will reportedly last for six days.
- Lines had formed at Greek banks as citizens sought to pull their money after Tsipras announced the decision to hold the referendum.
For the uninitiated: Tsipras is the present Prime Minister of Greece, IMF is International
Monetary fund, Eurozone is the region where the currency Euro is in use, Greece
is a member of Eurozone consisting of 19 member countries, referendum is the practise
of conducting polls to ask a country’s citizen regarding their opinion on an
issue, Capital controls is the measure through which flow of capital from a
country is restricted: this is a drastic step that will dent the confidence of
investors in stock market and real estate, and the economy.
Now, how the Greece debt crisis
started?
The New York Times says ‘Greece became the epicenter of
Europe’s debt crisis after Wall Street imploded in 2008. With global financial
markets still reeling, Greece announced in October 2009 that it had been
understating its deficit figures for years, raising alarms about the soundness
of Greek finances.
Suddenly, Greece was shut out from borrowing in the
financial markets. By the spring of 2010, it was veering toward bankruptcy,
which threatened to set off a new financial crisis.’
And, this situation has been faced by many other European
countries to varying degrees. The below chart sourced from Wikipedia (source: European Debt crisis) explains the similar situation faced by other
countries:
Yes, 2008 still lingers and in that sense Greece situation
was a creation of the excesses of the boom years of early 2000s created by the
US and European economies. And, that is why Tsipras, the Primie Minister of
Greece has a valid argument when he says that international financial institutions
should also bear the brunt of the crisis.
Suggested readings: twitter feed from Greece PM https://twitter.com/tsipras_eu
Suggested readings: twitter feed from Greece PM https://twitter.com/tsipras_eu
An article from Quartz http://qz.com/275180/one-chart-explaining-what-happened-to-the-european-debt-crisis/
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