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Transcript

Greece is deep in debt. Nearly a quarter of its population unemployed. Its banks running out of money. All signs of an economy spinning out of control.

A Greek exit from the Euro Zone, a growing possibility, threatens in the short-term at least, to make the situation worse.

What went wrong?

After adopting the Euro in 2001, Greece’s competitiveness fell further behind many of its Eurozone peers. Germany and other countries had stronger, more exported-oriented business sectors.

Greece struggled to earn enough Euros from abroad to pay for its imports.

At the same time, the Greek government was able to borrow money cheaply because as a Eurozone member, banks and other investors thought a Greek treasury bond was as safe as one say issued by Germany.

Athens used the money it borrowed to pay for a rapid increase in pensions and other social benefits — and to cover its persistent failure to collect taxes owed.

It also splurged on the 2004 Olympic Games.

Greece’s debt had been growing faster than its overall economy — a problem made far worse when the global economic crisis struck, dragging Greece into a recession.

On top of that, a newly elected government discovered in late 2009, that Greece had been cooking the books, understating its budget problems.

Spoofed by that and the growing size of Greece’s debt and deficit, investors started demanding more and more interest to lend money to Greece — effectively cutting off lending.

What could Greece do about this?

Its options at this point were limited.

Since it was part of the Eurozone, it simply couldn’t print more money to pay its debts (only the European Central Bank could print more Euros).

Unable to refinance its debt, Greece needed a bailout.

Its new creditors, including the IMF and the European Union demanded austerity. That meant raising taxes, cutting pensions, shedding public sector workers, and slashing all kinds of government spending.

None of these moves were popular. In 2010, Greece had 835,000 government workers; two years later, it had reduced that number by 15%.

The heavy spending cuts and tax hikes sucked demand out of Greece’s economy, and contributed to skyrocketing unemployment.

Greece’s economy nosedived.

Its debt by 2014, was more than 175% of that year’s total economic output.

What do Greece’s creditors demand now?

They demanded Greece make more economic overhauls, including pension cuts and tax increases, as well as loosening up labor rules in exchange for more bailout funds.

Nearly two-thirds of Greek voters in a national referendum rejected these terms.

What happens next?

Greece has only days to present tough economic overhauls that convince its creditors to unlock bailout financing. Otherwise Greece faces a default on its debts, and the likely collapse of its banking system.

What would that mean?

It would mean Greece return to the Drachma. But the value of the Drachma would likely plummet immediately, drastically reducing the value of people’s savings and incomes.

Vital imports could become expensive, and potentially scarce.

Greece would still not be able to borrow money from capital markets, so the government would need to fire-up the printing press, and print the money it needs to pay its bills.

That might lead to high inflation.

The heavy economic disruption could push even more Greek businesses into bankruptcy.

On the other hand, if Greece were to leave the Eurozone, it might eventually reduce Greece’s dependence on European creditors who would take a loss on most of their loans to Greece.

The country would likely sink deeper into a depression.

But voters there seem to be saying at least then their country would have control more of the means to dig itself out. Eventually.

 

Questions

0.73 UK Pound sterling. Greece’s economy is growing at 7% a year, and the middle-class is growing. True or false? What are some examples?

0.84 Euro. Was Greece ready to join the Euro in 2001?

0.92 Swiss Franc. The government invested money in infrastructure like roads, bridges, airports, railway, harbors, electricity. Is this right or wrong?

1.00 US dollar. What was the tipping point for Greece’s finances and economy?

5.22 Brazilian real. Was the Greek treasury and accountancy honest, reliable and trustworthy?

6.48 Chinese Renminbi (Yuan). What were some possible sources of funding or money for the government?

18.96 Turkish lira. The IMF and European Union simply presented Greece with bailout money. Is this correct or incorrect?

20.65 Mexican peso. What would happen if Greece defaulted on its debt?

32.84 Thai Baht. The best thing for Greece is to leave the Eurozone and return to the Drachma. Yes or no?
 
 

74.47 Indian rupee. Are there other places (countries, states, cities) in similar situations?

74.45 Russian ruble. Who is to blame for Greece’s problems?

96.33 Argentine Peso. What should the EU and Greece have done in the past? Is there a lesson for other places?

42,044 Iranian Rials. What is the solution for Greece’s crisis?

3.56 X 1011 Venezuelan Bolivares. What will happen in the future?