Posts Tagged ‘eurozone’

What’s up with Greece?

Wednesday, June 22nd, 2011

Greece.jpeg
(photo credit: David Spender)

You’ve heard that there’s a little trouble brewing in the glittering blue southeast corner of Europe, right? If you haven’t, Greece is in the middle of a nasty thing called a debt crisis. Basically, they can’t pay their bills, they’re gasping for air, and they’re pulling at ropes thrown by their European Union friends. So…

What’s the big deal? Why not let Greece’s failed economic policies fail? Who cares?

Fortunately for Greece, lots of people care. European nations (and investors throughout the world) see the Greek debt crisis as an infection that could spread throughout the EU and cause serious damage. Because nations in the eurozone all share the same currency (the euro), an economic disaster in one country will drag down the value of the currency for everyone.

So why hasn’t the problem been solved yet?

This (unbelievably) is the short answer, and definitely leaves out some of the finer points of the problem:

>>> Other EU nations have already stepped up and injected more than $100 billion into the Greek economy as a kind of bailout, but it’s just not enough. The Greek government has to cut spending and raise taxes in order to qualify for more aid, but citizens (and their powerful government reps) aren’t exactly excited about losing services and a bigger chunk of their paychecks.

>>> The government is also required to privatize some of its assets, which means selling valuable things like ports and banks and water utilities to private companies to raise cash. This also is not so popular – residents like their beautiful Greek coastline!

>>> Finally, private creditors (people who are owed money by Greece) have to agree to voluntarily hold onto and buy up more Greek debt (like government bonds). This is a hard sell in any case, but because publicly traded companies are legally obligated to act in the best interest of their shareholders, it may be especially hard to convince them that buying low-return debt in a failing economy is good for anybody.

What’s going to happen now?

Well, pretty much everyone involved agrees that they need to maintain a stable eurozone and a strong currency. So European nations are likely to keep trying to fix the problem any way they can. We’re not wizards over here at TILE, so we can’t say whether it will work, not work, or kind of work.

We will say that Greece is probably a pretty fun place to go right now if you’re looking for adventure civil-unrest-style!

Will The EU Save One Of Its Own?

Wednesday, February 10th, 2010

The European Union hasn’t been faced with the possibility of default by one of its member countries before. The world is watching as the relatively new eurozone figures out how to deal with the bad times as well as the good.

  • Greece (a member of the European Union) may not be able to meet all of its debt obligations, so the European Central Bank is meeting to consider what to do to protect the stability and credibility of the euro.
  • While there is no official bailout plan in place, certain countries within the eurozone (the group of EU countries that have adopted the euro as their currency) are piecing together aid plans that would transfer some of Greece’s debt burden to taxpayers in their own nations.
  • The EU’s rules require eurozone countries to keep their debt below a certain level, which Greece has repeatedly failed to meet. But the rules also state that the European Central Bank and central national banks cannot bail out countries, so Greek recovery may be left up to the will of individual eurozone countries.

Facts & Figures

  • The EU’s limit on debt ratios for eurozone nations is 3% of GDP.
  • Greece is expected to show a 13% budget deficit this year.
  • Greece owes a total of $303 billion to foreign banks.

Best Quote

“As long as it is very clear that any support only comes with very, very stringent conditions attached, it would not affect the moral-hazard question. It is a choice between two evils.” – Fabian Zuleeg, Chief Economist at the European Policy Centre