Understanding the Greece Crisis

Over the past few weeks, we have been hearing about the Greece Debt crisis and how it is affecting the Europe and the world markets at large. This article will throw light on what actually is the problem with Greece and how it is being resolved.

The Problem

Greece is a developed country and has been the member of the European Union, since 1981. When Greece joined the Eurozone, the common understanding was that all the Euro country would keep their budget deficit below 3% of GDP. Subsequently, it was found that Greece had a budget deficit of more than 13%. This, extremely high budget deficit, in turn, highlighted the fiscal problems in Greece. The key fiscal problems included, high spending of large projects, high salaries to civil servants, and low collection of taxes.

These fiscal problems, combined with high budget deficit, let to the concerns that if the things were allowed to continue in the same way, without any intervention from external forces (like European union or IMF), the Greece economy is surely heading for default.

Response

The initial response of the Greece government to this crisis was that it is their internal problem and that they will resolve it themselves. However, the market reacted adversely by heavy selling of Greece bonds.

Subsequently, as the Greece fiscal problems continued to be getting worse, Greek authorities promised that they would work with the European Union to solve the problem They will reduce expenses, cut public sector salaries, raise taxes, and control corruption. However, this led to protests from the public, especially the trade unions.

Current Situation

A 110 billion euros bailout package has been planned by the IMF and European Union, to restore the nations finances.

What do you think will be the impact of this bailout package? Please leave your comments.