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Greece Situation, a Dilemma for Europe



Greece is the birthplace of democracy, philosophy and the Olympics. Unfortunately, it’s now the birthplace of a modern-day financial catastrophe. The events transpiring in Greece are a potential preview for what is on the horizon for the United States if America’s debt is not reigned in.

What’s happened with Greece? First, the global economic recession beginning in 2009 had an effect on Greek businesses, which reduced revenues to the government’s tax coffers. On top of that, Greece has been carrying a debt load that is at least thirty percent higher than the European average. These two factors create a terrible situation for a country. Massive layoffs, low economic production, and government instability have created turmoil not seen in a developmentally advanced country like Greece in decades. Citizens fear Weimar Republic-like inflation where a wheelbarrow was needed to carry enough currency to purchase a loaf of bread.

Since Greece’s debt is held by foreign countries, a ripple effect has spread to these countries since they now fear that the debt will not be repaid. For a company to default on a debt is normal, for a country to default on debt could be deemed as catastrophic. The European Union has been debating the last couple of months what should be done with Greece’s debt. Germany has been persuaded by other members of the EU to fund a bailout package to help Greece prevent a default, while others are suggesting that Greece undergo a slow, orderly default.

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One of the biggest effects when a country defaults on debt is that interest rates rise significantly. In Greece, the interest rate on Greek Two-Year Government Bonds skyrocketed from 1.78% in July of 2009 to over 26% in July of 2011. This means that the market has lost faith in Greece’s ability to repay its debt, meaning that Greece’s spending spree has to be cut to a halt. The problem with this is that such a large number of Greek citizens are dependent upon the government for their well-being. If Greece can no longer borrow the same amount of money, the citizens who depend on this money will be left having to find work in a country where very little jobs are available.

How does this resonate around the world? It’s bringing to light the problem with debt. For years and years, countries have depended on each other to borrow money in order to fund their countries. In the United States, for example, politicians fund their projects by simply borrowing more money – mainly from China. Today, the United States is in a debate as to whether or not to raise the “debt ceiling” which is the self-imposed barrier of borrowing more money. Should the United States Congress not vote to increase the debt ceiling, the country will default on its debts, affecting its credit rating across the world and increasing the cost to borrow money across the board.

Greece, Spain, Portugal, and the United States are four countries who are wrestling with major inflationary and debt fears. Such uncertainty affects all global markets. When countries are struggling with staying afloat, how is a business supposed to have confidence? If a business lacks confidence, it will not hire employees. It will not expand, and it will therefore not generate tax revenues for the country it resides in.

The silver lining in the crisis in Greece is that the EU will work together to find a solution – because there is simply too much at stake to the global economy to let this problem have no resolution.



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