payal mehra wrote an Article under inkupp
Greece Debt Crisis

These days one of the most highlighted news is the Greece Crisis. This deficit crisis in one of the countries of the Eurozone has started a round of discussions and debates over the reasons and repercussions of this event on the global as well as on the respective country’s economy.

The Greek government-debt crisis started in late 2009. It was the first of four sovereign debt crisis in the eurozone – later referred to collectively as the European debt crisis. In Greece, triggers included the turmoil of the Great Recession, structural weaknesses in the Greek economy, and a sudden crisis in confidence among lenders. The roots of the crisis lie far away from Greece; they lie in the architecture of European banking. When the euro came into existence in 1999, not only did the Greeks get to borrow like the Germans, everyone’s banks got to borrow and lend in what was effectively a cheap foreign currency. And with super-low rates, countries clamoring to get into the euro, and a continent-wide credit boom underway, it made sense for national banks to expand private lending as far as the euro could reach. So European banks’ asset footprints expanded massively throughout the first decade of the Euro, especially into the European periphery. Indeed, according the Bank of International Settlements, by 2010 when the crisis hit, French banks held the equivalent of nearly 465 billion Euros in so-called impaired periphery assets, while German banks had 493 billion on their books. Only a small part of those impaired assets were Greek, and here’s the rub: Greece made up two percent of the eurozone in 2010, and Greece’s revised budget deficit that year was 15 percent of the country’s GDP—that’s 0.3 percent of the eurozone’s economy.


Greece owe a total of about 323 billion Euros out of which 60% share belongs to the Eurozone,10% to IMF, 6% to European Central Bank, 5% Greek Banks, 15% are other type of bonds and 3% are bank loans. To avert the calamity of bankruptcy, the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Union (nicknamed as the Troika) issued the first of two international bailouts for Greece, which would eventually total more than 240 billion Euros which came along with harsh austerity measures for Greece (requiring deep budget cuts and steep tax increases).Many economists and many Greeks blame the austerity measures for much of the country’s continuing problems. However corruption and huge tax evasions cannot be disregarded in pushing Greece into a debt ditch so deep. However the country’s exasperated creditors, especially Germany, blame Athens for failing to conduct the economic overhauls required under its bailout agreement.


The landmark referendum will decide whether Greece will accept the creditors’ proposals and redefine its place in Europe. Greek Prime Minister Alexi Tsipras called a referendum on the latest bailout terms offered to Greece, campaigned that the Greek voters should vote "No" and reject these measures, and expected the vote would still be a "Yes." A Yes would continue the misguided policies of European Institutions, throw even better European taxpayer money after bad, and take the Greek economy further down with it in the process. A “no” vote would potentially improve Greece’s negotiating position with European officials, Country’s Prime Minister Alexi Tsiparas said. Exiting the Euro currency union and the European Union would also involve a legal minefield that no country has yet ventured to cross. There are also no provisions for departure, voluntary or forced, from the Euro currency union.


As per the analysis, this crisis won’t leave Indian economy unaffected. India's largest trading partner is the EU. Trouble there will affect India's exports. India exports nearly $40 billion [Rs. 2.4 lakh crores] every year to EU. Investors in US and elsewhere would pull money out of India and other "foreign" stocks for the losses in Greece. When investors pull money away, Indian stock markets will crash. That will affect Indian companies. When world bond markets get into a problem, Indian government would find it tougher to borrow money and that would affect domestic investments & growth. It would also push down the currency [meaning imports will go up] and cause inflation.