All you need to know about the Greece debt situation

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Greece
A man uses his cell phone in front of chart with the stock prices at the Greek Stock Exchange in Athens, Tuesday, Oct. 4. 2011. The Athens stock index closed negative 6,28 percent, as it dropped as low as minus 7.1 percent by late afternoon while the main Europe markets fell more than 3 percent. The turmoil endangered French-Belgian bank Dexia, whose shares plunged as much as 40 percent, on worries about its exposure to Greek bonds. (AP Photo/Thanassis Stavrakis)
  • Towards the end of 2009, a phenomenon took place which was the first of it’s kind in Europe with three more of such phenomenons to follow.
  • Name as The Greek government-debt crisis (also known as the Greek Depression)
  • It was triggered by the mayhem caused by the Greek recession, but this was not the root cause of this situation.
  • The root cause was a combination of structural weaknesses in the Greek economy along with a decade-long pre-existence of overly high structural deficits and debt – to- GDP Levels of public accounts. In late 2009, fears of a sovereign debt crisis developed among investors concerning Greece’s ability to meet its debt obligations, due to a reported strong increase in government debt levels along with continued existence of high structural deficits.
  • Greece should never have been allowed into the European Union. Like many of its neighbors, it has never followed the rules governing member’s debt levels.
  • For years, it managed to hide its real debt courtesy of a complex financial instrument organised by Wall Street powerhouse Goldman Sachs. That ruse came unstuck when the Global Financial Crisis hit and left the country and the single currency bloc exposed.
  • Rather than deal with the crisis in 2010, or the latest flare up in 2012, European Union officials instead perfected the art of obfuscation.
  • Greece will never be able to repay its debt. At 178 per cent of GDP, it is simply unsustainable. Austerity has caused the economy to shrink, blowing out the debt even further.
  • There are only two choices. Either a good chunk of the debt needs to be written off or Greece needs to leave the European Union.
  • The greatest impact of this situation will be faced by the ordinary Greeks. There is a possibility of Greece leaving the European Union and if that happens, it will have a devastating impact on its already shattered economy
  • In terms of the pure cash effect, Greece’s exit will crystallize losses on all outstanding loans from EU nations – through the European Central Bank and emergency funding – currently standing at about 331 billion euros ($480 billion).
  • Germany and France between them account for 176 billion euros ($255 billion), almost half the total.
  • Then there is the private debt held by banks. Greece owes German, French and British banks roughly 30 billion euros, and the IMF holds a similar level of debt.
  • If the nation goes into default and is forced out of the euro zone, these countries would have to write off Greece’s debts; that is a pretty strong motive to keep Greece in the tent.
  • Since Greece’s debt crisis began, most international banks and foreign investors have sold their Greek bonds and other holdings, so they are no longer vulnerable to what happens in Greece.
  • Greece may be linked to the world financial system in ways that may not be evident until it defaults on its debts or its banks collapse. So there is still potential for serious, unpredictable consequences.

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