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Sample Essay on Greek Debt Crisis

Greek Debt Crisis

The Greek debt crisis started way back in 2009 and is still on course to date. During this period, quite a number of changes have taken place in Greece. Just to mention a  few of the changes, the income of the Greeks has been significantly reduced, the political situation has also taken a different twist, rate of unemployed has increased, the country is marred by frequent protests and riots.

The Greek debt crisis is part of the ongoing Euro zone crisis that was triggered by the arrival of the Global economic recession in October 2008. It is believed to have been directly caused by a combination of structural weaknesses of the economy of Greece along with a decade pre-existence structural deficits and debt-to-GDP levels on public funds that are overly high. In late 2009, investors began developing fears of a sovereign debt crisis concerning the ability of Greece to meet its debt obligations, as a result of a reported strong increase in the levels of government debts. This further led to a crisis of confidence whose indications were the widening of bond yield spreads and the cost of risk insurance on credit default changes compared to the other nations in the Euro zone.

Image 2The Greek debt crisis highlights the dilemma that other countries that are heavily indebted also face. Even as the leaders of the European Union are struggling to come to an agreement on a resolution, Greece has triggered the debt crisis in the entire Euro zone, threatening even the viability of the European Union.

The Greek debt crisis came to the attention of the world in 2009 when Greece admitted that its budget deficit would be 12.9% of the country’s GDP. This is more than four times the European Union’s 3% limit. In efforts to pass across a warning of the looming crisis to investors, Fitch, Standard & Poor’s and Moody’s resorted to lowering the credit ratings of Greece. However, this only drove up the cost of future loans, making it more unlikely that Greece could find the funds to pay back its debts.

In 2010, Greece announced an austerity package, which was designed to reassure the agencies that it was fiscally responsible by cutting down the deficit to 3% f GDP b y 2012. However, this hit a deadlock since the country gave out a warning just four months later that it would default. In return for austerity measures, the IMF and EU have already provided a total of 240 billion Euros in emergency funding. Contrary to the expectations of many, these measures only further slowed down the economy of Greece, reducing the tax revenues required to repay the debts.

The funding that Greece received only gave the country sufficient money to pay interest on its debt and keep banks capitalized and barely running. As a result, unemployment rates went up to 25%, the political system was in upheaval since votes now turned to anyone who promised to pave a way out with riots and protests taking center stage.

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