Economic crisis have always been a part of the world’s financial structure. As we already have an ongoing topic let us analyse.
Greece, a country which is debated for more than five years. Will the country exit from the euro zone is the question.As we all have seen that the financial figures have been manipulated to stay in the euro zone have not worked out and the it has an deepening effect on the country. The “AUSTERITY” is been put to vote.
Let’s know what Austerity is:
It is the condition where one country limit’s the expenditure of their country’s citizens due to the sinking economic conditions. So this definition is for a common understanding but what the referendum contained was “Greece should do austerity on Europe’s terms or place its own terms”. This was the Referendum question.
What happens if it is a NO?
- Greece will leave the Euro zone.
- Greece will have to print its own currency (Drachma).
- Greece’s Economy will still be in ruins.
- It will run out of cash.
What happens it is a YES?
- Greece will have a new government.
- Banks reopen.
- New Financial policies.
- Harmony restored.
The Referendum was voted a Huge “NO”.
Why Didn’t Austerity work for Greece?
Greece has fared much worse than the other euro countries that face a sudden drop in foreign financing and enacted the similar way and then implemented the same Austerity programs. Greece has lost 26% of its GDP during pre-crisis but the other euro countries like Spain, Portugal have not lost more than 7%. The main cause was foreign trade. And the other main reason is the size of companies in Greece is a fundamental structural issue. Self-Employment and companies of fewer than 10 employees are more prevalent. This is more like micro level process, so austerity is not the right choice.
Bailouts Timeline and Description
First Bailout 2010:
The First bailout package was a Memorandum of understanding on financial assistance to Hellenic Republic in order to cope with the Greek economic crisis. It was Signed on May 3rd 2010 and a Totaling amount of 107.3 Euro Billion, 72.8 Euro Billion were disbursed by March 2012.
Second Bailout 2012:
This was the second bailout package, which was also a memorandum of understanding on financial assistance to Hellenic Republic in order to cope with the Greek economic crisis.
The second bailout package would take the form of an €100 billion aid package provided by the newly created European Financial Stability Facility. The repayment period was extended from seven to 15 years and the interest rate was lowered to 3.5%
Time to deal with the Debt’s.
The Risk of Greece Moving out from the Euro zone has been put to rest as of now, if and only if the debts would be cleared. Its National debt is too high. A Manageable debt level is vital for Greece, to invite new Investments until the level is reached. Without debt relief, Greece will never have a hope to improve its economic conditions. Greece did much during the bailouts to correct its budget positions.
Renegotiated with the New Greek government before the end of April, so that the review and last financial transfer could be completed before the end of June 2015. The new renegotiation deal was still pending by the end of May.
Faced by the threat of sovereign default, some final attempts for reaching a renegotiated bailout agreement were made by the Greek government in the first half and second half of June 2015.Default would inevitably entail enforcement of recessionary capital controls to avoid a collapse of the banking sector – and potentially could lead to exit from the Euro zone, due to growing liquidity constraints making continued payment of public pension and salaries impossible in euro. On July 5, 2015, a large majority of Greek citizens voted to reject the bailout terms (a 61% to 39% decision with 62.5% voter turnout). This caused indexes worldwide to tumble, as many are now uncertain about Greece’s future, fearing a potential exit from the European Union.
Who will pay for Greece Bailout?
The International Monetary Fund (IMF) was the first key player in the first two bailouts, considers Greece’s debt unsustainable, meaning it is unlikely to contribute unless it clears of some debt. The IMF has paid 2 billion Euros to clear off all arrears. It has stated that there are no long any arrears. It has also assured to provide financial assistance.
Let us see what new reforms Greece comes up with to tackle the economic condition of their country.
Author: Sai Kiran
Hey I’m Sai kiran.
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