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Greek Debt Crisis

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Title: Greek Debt Crisis

Introduction

The Greek debt crisis lies along lines of the country’s hefty expenditure as compared to its financial intake. This is profusely owed to the fact that its employed citizens are enjoying consistently elevated remunerations while undermining the importance of tax deductions to the state on its economic grounds. The disregard of the state’s revenue has led it to sink into a predicament of massive loans, which remain a threat with regards to the European Union zone. The European Union refers to the conglomeration of states, based on a political and economic background which thrives on the Euro as the common currency. The union is shaken by the fact that the other countries might not stand a chance to endure the risk of an economic turmoil if Greece does not submit to its responsibility of taking drastic measures to spell out the perilous situation. Therefore, the European Union and IMF suggested a deal to counter Greece’s debt crisis and invite a manageable solution. However, the deal has not managed to entice the citizens following their outburst of rage over their cut down salaries. The previous election into a coalition government did not pull through since the parties in support of the European Union proposal failed to secure a majority in parliament as required.

Discussion

The Bailout Deal Imposed By EU and IMF

The deal comprises of measures that attempt to counter the crisis and its implementation secures Greece’s place in the European zone. It promises a relief of 50 cents by the European banks, on each dollar Greece is in debt of on condition that the state follows a rigor and drastic change up in its economic administration. This cuts across, slashes on wages of working citizens, extended retirement levels, elimination of protracted social programs and interval repayment on the already cut down debt.

The impact of the May 6 election

The Greeks displayed their unwillingness to support the proposed deal by the EU in the elections conducted on May 6th this year. Their rage based on their sharply reduced salaries took center stage as their votes did not support the parties that focused on abiding by the bailout deal. This presented an angle of Greece being withdrawn from the European alliance and eventually losing the Euro currency. The Conservative New Democracy scooped the spotlight by emerging first with 18.85 percent and 108 of Parliaments 300 seats. However, the party leader, Antonis Samaras, suggested some ratification in the bailout plan through coalition-forming talks despite him being an ardent supporter of the bailout commitments. The extreme reaction of the Greeks placed the mainstream politicians in a stalemate since the governance could not be conducted by short of seats by the governing majority. In addition, no party had sufficient votes to justify its independent governance. This political pandemonium would allow for Greece’s retraction from the Euro zone. It is a discouragement to Greece’s potential investors due to its nebulous strategies. The troika, which is a term that defines the merging of IMF, European Central Bank and the Euro zone, would be triggered to freeze bailout funds for lack of cooperation fro Greece.

Implied consequences on Greece’s default on foreign debt

Greece’s default on the current debt crisis falls on the bracket of backing out on the proposed bailout deal by the European Union. There would be deterioration in stock markets across Europe and from U.S to Japan who serve as major investors. Soon, related sovereign states would be engulfed in the paddle of economic crisis. However, the impact in Greece internally would not be that adverse since it will reinstate the lost Euro by its earlier Drachma. It would have excessively cheap exports but will face a stumbling block on income in the foreign exchange. The impact will be strongly felt by the other European states since they will also face large bailouts. The market will in turn be deprived of money loosening the demand. Hence, there will be the emergence of a solid economic crunch. On the other hand if Greece accepts the EU deal, it stands a chance to pay its debts obviously with the help of other states with stable economies from Europe and the IMF.

The world’s involvement

The world and specifically Europe cares a lot about the Greece debt crisis because a single currency, Euro, underlines the alliance. This boldly determines the economies of the participating European countries and other investors. Therefore, Greece’s predicament would add salt to the wounds of the already weak Europe.

Conclusion

In response to the crisis, Greece will be obligated to implement the bailout deal since its existence in the European zone is a security to its economy’s life cycle. The parties will have to form a viable coalition to the state’s commitment to the European Union for it to continue enjoying bailout funds from IMF.

Work cited

Krieg, Gregory. An idiot’s the guide to Greek debt crisis. Abc news. 4 Nov, 2011.web.8 May, 2012

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