The Faulting in the Greek Economy and The Eurozone’s Rescue

From being nation known for its gods and mythology, Greece’s reputation has now transformed into a debt-defaulting country.

Inflation was out of control and debts were just skyrocketing brought up by a mixed of international financial turmoil and an ineffective monetary management.

With its economic conditions getting worse and worse, can Greece ever recover?

Getting into a Big Mess

Similar to most countries in the world, Greece heavily relies on borrowing to balance its books.

The country kept borrowing from its European partners in attempt to kick start its economy. Unfortunately, recession has made the situation worse for Greece. Aside from the huge slump on its economy, the sloppy fiscal policy, poorly organized public sector and the statistical misreporting pushed the country to borrow more money, which caused its debts to soar in a non-sustainable level.

In 2009, the country’s public deficit touched a 15.2% high and its public debt was the highest in Europe, comprising 126.8% of GDP. The situation caused the investors to lose their confidence in the Greek’s ability to pay. In return, they demanded for interest rates to compensate the risk.

Events began to be out of control and as borrowing costs gets higher and higher, the harder it is for Greece to escape the trouble. Its credit ratings were downgraded to “junk” status as the country nears bankruptcy.

Eurozone, not the Greek Gods, to the Rescue

Fearing to reach the bankrupt status, Greece had tapped the European Union to help them recover in their recent economic debacle. The European authorities handed 7.5 billion euros or 8.4 billion dollars as bail out aid for Greece.

The bailout aid will be used to pay the country’s bills and ease concerns about the crisis. It has also received additional pledges of debt relief and the total loans have amounted to more than $270 billion.

In exchange to this financial aid for Greece, the country was required to have major changes in its fiscal policy by imposing deep budget cuts, increase taxes, curb tax evasions and revive the country’s business feasibility.