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Greece Economic Crisis: What Is The Consequence To The World If Greece Defaulted On Its Debt?
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Greece Economic Crisis: What is the Consequence to the World If Greece Defaulted on Its Debt?

Recent Development in Greece

In the latest development of Greece economic crisis as of mid-June 2011, Eurozone financial minister has post-phoned a bail-out loan of around 12 billion Euro until the Greek government is united on its austerity measures and government economic reforms. The delayed talk will be held on July 11,2011 and until then financial ministers across the board are buying the much needed time to decide the fate for Greece. In the meantime, political turbulence is erupting in Athens as public is opposing the austerity measure taken by the government.

An austerity measure is basically deficit-cutting on social benefits and public services in order to slash debt that the government is unable to pay back. In the case of the Greece economic crisis, the national debt levels have been way beyond what it should be back in May 2010.

Root of the Problem:

The cause of the problem started when Greek government has been overspending which accumulated insurmountable debt overtime. Normally, the government can get out of debt by borrow money commercially within sector of its economy. However, Greek government has reached a point where its deficit is 14% of its national GDP because someone has been misreporting the data. As a result, this was too expensive to borrow money commercially as a result a first bail-out took place with the help of the EU and IMF back in May 2010.

The problem currently is Greece is still unable to meet its financial obligation and other peripheral European countries such as Italy, Spain, Ireland, and Portugal are experiencing the same problem. Countries such as Germany and France which makes up the economic core of the Eurozone are unwilling to help the Greece economic crisis as no one wants to fix someone’s else mistake.

If Greece is to be defaulted, it would be similar to a bankruptcy but with a rippling effect:

The Consequence to the World

The creditor will seek to sell assets against which their debts are secured. The Greeks will then have no access to credit for some period of time and even if they do, it will be too expensive to obtain. Because of the lack of credit, the coutnry will not be able to carry out expensive government projects and have to cut their import of goods from neighboring countries. As a result, Greece has to make the goods herself and it will help create new jobs for the countries.

The problem is if Greece is to be defaulted, the other peripheral countries will follow through and it can ultimately affect the entire stability of the European Union. Since European Union is the second most influential economic center in the world, the collapse of Europe itself will lead to a demise of the global economic system.

Bottomline is whatever happens in the Greece economic crisis will affect a lot of people in the world in a very negative way.


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