What if greece goes bust

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Create your own newsfeed. Irish News. Create my newsfeed. Open journalism No news is bad news Your contributions will help us continue to deliver the stories that are important to you. Newsletters Podcasts More. Weekly Podcast. The Explainer is a weekly podcast from TheJournal. Listen now wherever you get your podcasts. They've also hurt the country's economy so much that Greece can't raise money to pay off its debts on its own, and will keep needing bailout money.

Without the euro, Greece could handle all this without external help. But the euro means it can't use monetary policy to help itself out, locking the country into this horrible cycle.

It's mostly Europe's fault, but Greece isn't blameless. The financial crisis revealed that its government had been, for years, borrowing more than it reported publicly, meaning the country was running bigger deficits and racking up more debt than previously thought. But Greece enlisted banks like Goldman Sachs and JPMorgan Chase to evade those rules and borrow money under the radar to enable more spending.

The discrepancy was massive. On November 5, , the newly elected socialist prime minister, George Papandreou, admitted that the year's budget deficit would be The country's finances were in much, much, rougher shape than anyone — especially anyone financing the Greek government by buying its bonds — had realized. At the same time, tax evasion by Greek citizens and businesses was, and remains, a huge problem.

A study comparing Greek bank account data with government tax data found that the true income of the average Greek person is about 92 percent higher than the income reported to the government. Tax evasion accounted for half of Greece's deficit and a third of its deficit. All that being said, the biggest factor in Greece's collapse into crisis was the global recession, which was enough that even countries like Spain that were running budget surpluses before the crash found themselves in debt crises.

Greece's budget mismanagement was bad, and its tax evasion is a chronic problem. But don't get distracted: The real root of the crisis is that economies across Europe collapsed, the European Central Bank acted in the interest of rich northern countries like Germany and against the interest of poorer southern countries like Greece, and the Greek people paid the cost. Following their landslide victory in January , Syriza and its leader, now—Prime Minister Alexis Tsipras, made it their top priority to renegotiate the terms of the bailout and ease up on the austerity program.

This was what they were elected to do, but it was an impossible task, because Syriza has no leverage. A few years ago, a Greek exit from the euro would've been a catastrophe. Foreign banks held so much Greek debt that a Greek default would have threatened to sink them. There was also a chance that a default would drive up interest rates for other struggling European countries like Portugal, Spain, and Ireland and force them to default.

But now foreign banks aren't holding that much Greek debt, and European lenders are backing up Portugal, Spain, Ireland, and the like, so they have little to worry about. A Greek default would mostly just affect Greece. That denies the Greek government its most powerful tool in negotiations: a threat to just pick up and leave the euro.

The Syriza government tried to renegotiate the terms of the bailout all the same. But, predictably, the negotiations went poorly for the Greeks, and after a February standoff Greek leaders made a number of concessions — giving up core promises such as a minimum wage increase — to extend the bailout for another four months, austerity and all. It was a huge defeat for Syriza. It's now time to negotiate another extension, but after Greece made even more major concessions, European lenders still judged them to be insufficient.

Eventually, the Greek government gave up trying to reason with its lenders. Tsipras put the lenders' latest proposal — which he calls "unbearable" and German Chancellor Angela Merkel calls "extraordinarily generous" — up for a national referendum on Sunday. Voters will decide whether to accept lenders' demands and continue with austerity, or reject them and thus likely default.

But a failed payment will definitely spook investors and cause bond interest rates to spike, which isn't something Greece needs now of all possible times. It has recently come to my attention that there are Greek musicians other than Vangelis and Yanni. But a lot of it comes from other European taxpayers, particularly German taxpayers.

If you're a German politician, this puts you in a tough spot. You don't want Greece to collapse in on itself, because you believe in the European project and don't want to see the eurozone break up, because you don't want to spur other countries to leave, and because you're a human being who doesn't like needless human suffering. But you also don't think it's fair to use your own people's money to subsidize a country that's shown itself to be really bad at basic state functions like collecting taxes, that has traditionally handed out government jobs as political favors , and that engaged in outright fraud to enable reckless amounts of borrowing during the mids boom years.

It doesn't seem fair, and it also doesn't seem sustainable. What's to stop Greece from running up its debt again in the future and provoking a similar crisis? From European lenders' point of view, the way you do that is by making deep reforms a condition of bailout money.

That has the side benefit of making it easier to sell aid to your German voters. Sure, we're giving the Greeks money — but we're making them get their shit together too. That's what the Europeans say, but it doesn't make a whole lot of sense. Subscriber Account active since. But the rest of Europe still needs to approve the new bailout agreed to in July. If there is no consensus, Greece will likely be unable to pay its bills, and will default on its debt. Source: Reuters. Source: Bank for International Settlements.

From Financial Mirror :. French financial stocks have taken another hit today sparked by expectations of a Moody's downgrade of French banks this week. Romania and Bulgaria's private sectors, and their public sectors, are exposed to the Greek banking sector.

If Greece's banking sector is slammed in a default, the result could be a lack of funding for the Romanian and Bulgarian sovereigns, private enterprises, or worse, according to Nomura via FT Alphaville. Such a move however would be difficult and impose additional burdens on an already highly stressed Greek banking sector.

This is anti-growth for Romania and Bulgaria, though arguably it has already started to occur. Consolidation causes asset sales in Bulgaria and Romania.

They championed austerity measures. They believed the measures would improve Greece's comparative advantage in the global marketplace. The austerity measures required Greece to improve how it managed its public finances. It had to modernize its financial statistics and reporting. It lowered trade barriers, increasing exports. Most importantly, the measures required Greece to reform its pension system.

Pension payments had absorbed It also required a higher pension contribution by employees and limited early retirement. Half of Greek households relied on pension income since one out of five Greeks were 65 or older. The austerity measures forced the government to cut spending and increase taxes. That reduced the tax revenues needed to repay the debt.

The political system was in upheaval as voters turned to anyone who promised a painless way out. The results are mixed. In , Greece ran a budget surplus of 0. In , Greece announced its budget deficit would be That scared off investors and raised the cost of future loans. Greece attempted to reassure the EU lenders it was fiscally responsible.

Just four months later, Greece instead warned it might default. The EU and the International Monetary Fund provided billion euros in emergency funds in return for austerity measures.

The loans only gave Greece enough money to pay interest on its existing debt and keep banks capitalized. The EU had no choice but to stand behind its member by funding a bailout.

Otherwise, it would face the consequences of Greece either leaving the Eurozone or defaulting. Austerity measures required Greece to increase the VAT tax and the corporate tax rate. It had to close tax loopholes. It created an independent tax collector to reduce tax evasion. It reduced incentives for early retirement. It raised worker contributions to the pension system. At the same time, it reduced wages to lower the cost of goods and boost exports. The measures required Greece to privatize many state-owned businesses such as electricity transmission.

That limited the power of socialist parties and unions. Why was the EU so harsh? EU leaders and bond rating agencies wanted to make sure Greece wouldn't use the new debt to pay off the old.

Germany, Poland, Czech Republic, Portugal, Ireland, and Spain had already used austerity measures to strengthen their own economies. Since they were paying for the bailouts, they wanted Greece to follow their examples.

Some EU countries like Slovakia and Lithuania refused to ask their taxpayers to dig into their pockets to let Greece off the hook. These countries had just endured their own austerity measures to avoid bankruptcy with no help from the EU. In , the European Financial Stability Facility added billion euros to the bailout. Despite the name change, that money also came from EU countries.

The government successfully sold bonds and balanced the budget. In January , voters elected the Syriza party to fight the hated austerity measures. On June 30, , Greece missed its scheduled 1. Both sides called it a delay, not an official default.

Two days later, the IMF warned that Greece needed 60 billion euros in new aid. It told creditors to take further write-downs on the more than billion euros Greece owed them. On July 5, Greek voters said "no" to austerity measures. The instability created a run on the banks. Greece sustained extensive economic damage during the two weeks surrounding the vote. Banks closed and restricted ATM withdrawals to 60 euros per day.

It threatened the tourism industry at the height of the season, with 14 million tourists visiting the country. The European Central Bank agreed to recapitalize Greek banks with 10 billion euros to 25 billion euros, allowing them to reopen. Banks imposed a euros weekly limit on withdrawals.

That prevented depositors from draining their accounts and worsening the problem. It also helped reduce tax evasion. People turned to debit and credit cards for purchases. As a result, federal revenue increased by 1 billion euros a year.