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What is Greek Crisis and why it happened?

You must have heard about the Greek Crisis. Here is a brief about this critical period and why it happened?

by Harshal Jain

greek crisis.http://www.recaptoday.com

Greek crisis is basically Greece debt crisis that Greece is not able to pay back loans it borrowed, like from IMF(International Monetary Fund)

How this all started, lets see this:-

It all started in 2001 when Greece became the member of Eurozone (Group of countries that have adopted euro as their common currency)

2001: Greece became the 12th — and last — country to join the eurozone before the launch of the euro at the beginning of 2002.

To join, a country had to demonstrate that it had achieved “economic convergence” with the other eurozone members — a requirement meant to ensure that different countries would not jeopardize the common currency.

When Greece was accepted, Finance Minister Yannos Papantoniou described it as a day that would place Greece firmly at the heart of Europe

2002: Everyone now agrees that Greece cooked its books.

One of the economic convergence requirements was that a country not have a budget deficit of more than 3% of GDP, or gross domestic product.

It was a requirement imposed on all countries, but one that has not been followed over the years by all eurozone countries — not even that staunch advocate of strict discipline, Germany itself.

Yet the extent to which Greece hid its economic problems from its fellow eurozone members would prove staggering.

March 2004: Two years later, a new government came to power

In March, the center-right government of Prime Minister Konstantinos Karamanlis took power. And it took a look at the books.

What it discovered was appalling. The budget deficit was not 1.5%, as reported, but 8.3% — five and a half times higher than thought.

The Karamanlis government faced a dilemma: What should it do with this shocking information?

August 2004: The Olympic games were approaching — returning to Greece, the land of their birth. This was the country’s turn to shine on the international stage.

Well, no need to upset people, inside Greece or out, the government thought.

Instead of revealing the extent of the deficit — and starting to deal with it — the government covered it up.

2008: In 2008, the country’s tax collection, such as it was, collapsed. The hole in the budget grew too big to hide.

Greece needed help.And the other eurozone countries, fearing contagion — that, if Greece defaulted on its debts, other eurozone countries’ cost of borrowing would rise to unsustainable levels — felt they had no option but to give that help.

2010: In 2009, international investors, understandably spooked by the revelation that Greece’s previously announced debt and deficit figures were inaccurate, became worried about the country’s ability to pay its debts.

The country’s credit rating was downgraded, first by Fitch and then by Moody’s.

With investor confidence disappearing, the country’s cost of borrowing spiked and the situation ran the risk of running out of control.

So the other eurozone countries, in the form of the so-called troika — the European Commission, the European Central Bank and the International Monetary Fund — stepped in to prop up the patient.

2010: In May 2010, leaders of the eurozone and the Greek government agreed on the conditions for a 110 billion-euro bailout loan. But the bailout came with strict conditions — among them that the government had to improve its tax collection and save money in an effort to bring its budget into balance.

Saving government money, though, meant laying off government workers. And that meant that those workers had less to spend, so other businesses suffered and laid of workers, too.

Unemployment rose, depressing government tax revenues.

2010-2012 Protests grew. The country tossed out the government of social democratic Prime Minister George Papandreou and ran through two provisional Prime Ministers — all in 2011 — before turning to the conservative party of Antonis Samaras.

But still, the bailout medicine didn’t do the trick. In February 2012, the government accepted another bailout loan, bringing the total borrowed to 246 billion euros. A new austerity plan was agreed upon as well.

The amount owed to the international lenders was now 135% of the country’s GDP.

And things were just getting worse.

Unemployment rose to near 30%. Youth unemployment soared over 50%.

But the country ran out of money again.

2015: Still, the budget refused to balance.

More money was needed — and realistically, debt relief as well, if the country were ever again to stand on its own two feet.

The country was now led by the left-wing government of Alexis Tsipras. Relations between representatives of the international lenders and Tsipras and his finance minister, Yanis Varoufakis, were poor — hampering negotiations.

In June, the negotiations broke off, with each side apparently daring the other to be the cause of a Greek exit from the eurozone.

At the end of June, Greece defaulted on a repayment to the International Monetary Fund.

The banks started to run out of money. Capital controls were introduced, limiting the amount of money people could withdraw each day.

And now, after weeks of brinksmanship, including the rupture of negotiations and the holding of a referendum — in which the Greek people apparently voted “No” to more austerity — a deal to lend the country more money and cancel some of its past debt is needed soon to avoid having the country fall out of the euro.

This all lead Greece to its present scenario.

To Read: 10 Things More Valuable Than Money

 

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