OK, so we all have a clue what the Greek debt crisis is about : Greece borrowed more money than they can pay back. So far so simple.
Well, to explain it further lets take an example, You know someone having an annual income, say $20,000, marginally lower than people living in your near by area. Now imagine that he has quietly accrued debts worth $30,000 over the years, and told a few lies along the way to get their credit card limit raised. Finally, imagine that the credit card company has turned nasty, and is demanding that the loans be paid off at an interest rate of 40%-plus.
Now think the someone we were talking about was Greece – a country that’s better off than Estonia but not as well off as Germany or France – where debts are 150% of national income and where there is not the distant hope of turning the financial position around.
In similar circumstances, as an individual we would try to cut down on our expenses, try to earn more money by taking out on part time job, selling out our assets so that we can pay out on our debts. But interest rates of 40% mean that the $30,000 debt gets bigger even though the new part-time job is bringing in a bit of extra cash and all unnecessary spending has been stopped. The credit card bill gets bigger and bigger, despite all the austerity.Now that you are assured that you won’t be able to pay your debts and the only option left will be either if you have anyone of your fat pocket relatives who can help you by paying the amount to the credit card companies for you.
Like an individual, Greece has passed their hands to friends and family in the hope that they will help. In particular, it wants the Germans to do what they have done during in every other European crisis of the past half century – write a big fat cheque and problem solved.
The problem, though, is Germany and France have grown tired of helping up for the spendthrift members of the family. They have started believing that instead of giving them the lending hand like in every dreadful situation it is time for Greece to understand how to handle its economy.
For an individual, this would be the moment of truth. If the rich relatives turned down their appeal for an emergency loan, the only option would be to default on their debts by declaring themselves bankrupt.
But this is where the difference comes when an individual and a country breaks down. If an individuals broke, it is confined to a relatively small number of people. If a country goes bust, it affects all the banks and pension funds that have extended heaps of credit down the years.
Will this crisis affect only Greece?
When 17 nations use the same currency its always difficult to say that it wont affect rest. Portugal, Ireland, Italy, Greece and Spain — gathered under the unfortunate acronym PIIGS — are some of the most highly leveraged eurozone countries, and most people think that if a disaster happens, it will start with one of them. Italy’s debt is 121 percent the size of its economy. For Ireland, that figure is 109 percent. In Greece, it’s 165 percent.
There are unsure figures coming out that says Greece has debts worth € 190 bilion to ECB. We pray that Greece gets out of this crisis and learns a lesson out of it.