Grexit & Greece Crisis 

Greek government spokesman Dimitris Tzanakopoulos recently said that,

“The Greek government is negotiating with responsibility and resolve… but all of that must, however, be without any additional burden, and without extra cost for Greek society. Our aim continues to be an agreement with not even a euro more of additional measures”  

And again the Greek government’s debt crisis and Grexit are mostly likely to re-appear in the public debate and the headlines.

Picture credit: respective owner

What is Grexit? 

Grexit is Greece’s potential exit from the European Union. Which will turn into the reality unless the EU eases its bailout terms, After leaving the euro zone, Greece might change the currency and switch back to its previous currency, the drachma.

Why Greece need a bailout? { Greece Debt Crisis }

In 2008 Greece became the center of Europe’s debt crisis after Wall Street imploded. The so-called troika: the International Monetary Fund, the European Central Bank and the European Commission have issued two bailouts until now which worth more than €240 billion.

But still the Greek crisis is unsolved as the bailout money has been spent toward paying off Greece’s international loans, rather than making its way into the economy and the government still has a staggering debt load which is almost more than 177% of their national GDP and that cannot begin to pay down unless a recovery takes hold or once again EU help with an another bailout.

Even there are several issues involved in the bailout as it comes with conditions. Creditors impose harsh austerity terms, suggesting deep budget cuts, steep tax increases and overhauling of the economy by streamlining the government by ending tax evasion etc. But Greek people who have already faced the salary cuts for almost 11 time since the great crisis and 25 percent of them are the victims of unemployment are strongly against such austerity. 

Credit: Respective owner

What change Grexit can bring?
Most importantly, Greek government won’t have to strictly follow the austerity measures. Greece would reinstate the drachma, abandoning the euro. The Greek government could also hire new workers to reduce the unemployment rate and boost the economic growth.

But this is also not a perfect solution as foreign lenders might suffer losses as drachma is likely to have plummeted. Plummeting drachma values could trigger hyperinflation, skyrocketing the cost of imports. Well, import is going to an another issue here as many companies won’t like to trade with a country who can’t pay the bills. Greece highly depends on imports as 40 percent of food & pharmaceuticals and almost 80 percent of its energy so reduced imports will create a catastrophic situation.

No matter whether Greece tackle the situation or not but the interest rates on all indebted countries are going to increase. And other indebted countries might also leave the euro zone to nationalize their economies. Which might results in weakening of Euro.

Credit: respective owner

Though Russia & China have given indications that they would lend to Greece, It might still remain in the burden of debt. Unless more strategic approach is employed to resolve the situation.Because according to IMF, without legislation of further pension cuts and tax increase Greece can not attain a primary budget surplus of 3.5 %.

The tourism sector is a ray of hope for Greek people which can slightly uplift their economy.

Grexit might cause the ‘contagion’ effect that could cause other countries’ finances to suffer. Banks across the Europe which are already in a fragile state would collapse if Greece doesn’t pay what it owes. In the worst case, this may result in a meltdown of the financial system of EU. In any way, Greece’s economic future seems grim. As  IMF has warned that even if debt relief is provided or reforms are implemented religiously, Athens’ debt crisis is doomed to be explosive.

Greece must improve the way of managing public finance and should religiously follow the austerity measure which will result in improvements over a long run.

Published by Mahesh Mali

Author of 'Reflections of My Youth' | Student @ SPPU | Former Fellow @BeingVolunteer | Freelancer @PlayoApp | Tennis Player

8 thoughts on “Grexit & Greece Crisis 

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