Question

Explain the Greek Financial Crisis land why it happens?

Answer 1

The Greek debt crisis is the risky amount of Greece's sovereign debt owing to the European Union from 2008 to 2018. Greece said it could default on its debt in 2010, undermining the eurozone's own viability. The EU demanded Greece to take austerity measures in exchange for the loan. The aim of these reforms was to improve the Greek government and financial structures. They did so, but in a recession that did not end until 2017, they have mired Greece.

The situation caused the debt crisis in the eurozone, raising fears of turning it into a global financial crisis. It warned of the plight of other EU members who were heavily indebted. A nation whose economic output is no greater than the U.S. has triggered this massive crisis. State of Connecticut. The budget deficit in Greece reached 15% of its gross domestic product in 2009. Fear of default broadened the spread of the 10-year bond and ultimately led to the collapse of the bond market in Greece. This would shut down the ability of Greece to fund additional debt repayments. The following graph shows in red the time when the 10-year government bond yield reached 35 percent before major debt restructuring forced private bondholders to accept investment losses in exchange for less debt.

Germany and its banks were the biggest creditors. They advocated policies of austerity. They claimed that the steps would boost the comparative advantage of Greece on the global marketplace. The austerity measures forced Greece to change how its public finances were handled. It had to update its accounting and reporting data. This reduced barriers to trade and increased exports. Most notably, the reforms included reform of Greece's pension system. Pension payments had taken up 17.5% of GDP, higher than any other EU country. Public pensions are underfunded by 9%, compared with 3% for other nations.

The policies of austerity forced the government to cut spending and raise taxes. They cost EUR 72 billion, or 40% of GDP. The result was a 25 percent fall in the Greek economy. That decreased the tax revenue needed to repay the debt. Unemployment has risen to 25%, while youth unemployment has risen to 50%. In the streets, rioting broke out. When voters turned to anyone who promised a painless way out, the political system was disturbed.