Greece and the Debt Crisis

Greece right now! SIKE!!!

WHAT’S HAPPENING?

Currently Greece is in debt for about 1.5 billion euros which translates to $1.8 billion. So now Greece has to pay back that money to the European Central Bank, (ECB). And if Greece fails to pay back this amount of money by Tuesday, June 30^th they will be defaulted and will have to exit the Euro zone or the EU. To reach a debt deal for Greece, talks between the IMF, ECB, and Greece are taking place in Brussels to prevent Greece from reaching potential consequences.

WHY IS GREECE IN DEBT?

“Constant government borrowing to fund promises by politicians" has caused Greece's cash crunch, says David Kotok, chief investment officer at Cumberland Advisors. Making matters worse, for the purposes of paying out benefits, Greece has a retirement age of 57, as to the U.S., where retirees can start taking benefits at age 62. While retiring early is good for Greek workers, it creates a major financial burden on the government. Tax evasion in Greece is also immense, and when taxpayers dodge their obligations it means less revenue for the debt-strapped government.

WHAT WOULD HAPPEN IF GREECE DOESN’T PAY?

First, the euro would be abandoned, and Greece would return to its previous currency. The currency would likely tumble in value against the euro as soon as it would be issued, and how much the government could print quickly would be a big issue. Secondly, capital control will arise. There would be people trying to pull their money out of Greece's banks in large amounts. The Greek government would have to make that illegal pretty quickly. Lastly, European life support for Greek banks would be withdrawn. Greek banks can currently access emergency liquidity assistance from the ECB, which would be removed if Greece left the euro.

WHY HASN’T GREECE PAID THE ECB BACK?

The "austerity" plan meant less spending, higher taxes, crackdown on tax evasion and other measures designed to get Greece's finances back on track. But Greece still couldn't come up with the funds to pay its bills on its own. As a result, Greece's financial situation worsened. Its unemployment rate is above 25% and its GDP has fallen by roughly 30% since 2008, according to World Bank data. The bottom line: It is virtually impossible for Greece to pay down its enormous debt when the economy is under performing.

WHAT’S AT STAKE FOR GREECE?

Greece's role as a member of the 19-nation euro is at stake. There is a chance that it will have to exit from the EU. What's more, if Greece fails to strike a deal for more bailout funds, it is likely that the financial pain and economic challenges will become even greater, creating a great burden on its citizens.