By Stephanie Berenbaum – July 22, 2011
Oops! They Did It Again
Wasn’t it just last summer that I was scrambling to write an article summarizing the Greek debt crisis and subsequent bailout package? Well, guess what – they did it again! Greece is receiving yet another bailout. So what’s this all about – and what happened to last year’s rescue? Lucky for us, we had international economist Ben Carliner give us his thoughts on today’s news…
You Thought Greek Bailouts Were So 2010
Just to refresh your memory, here’s what happened last summer in Greece. In a nutshell, their economy was in bad shape – they were spending more than they brought in and couldn’t afford to keep up with their overwhelming debt payments.
So they were bailed out by the IMF (International Monetary Fund) and the EU (European Union). Now it’s a year later – and they need another bailout.
Sure, it’s easy to judge, but haven’t a lot of us been in the same position? We certainly have heard many stories from friends about getting into a heap of debt, getting bailed out by parents, only to find themselves in financial trouble once again. When you think about it, international economics shares a lot of similarities with the personal finances of regular individuals….
If At First You Don’t Succeed…
According to our economist friend Ben, last year’s bailout simply didn’t work. He explained that not only did the 2010 bailout increase the size of the Greeks’ debt burden, but the new loans were conditional on very severe austerity measures – ie. they had to tighten their financial belt – big time. So, as Ben points out, rather than to stimulate the economy, “the Greeks were forced to raise taxes, cut spending, and slash wages – which caused the economy to contract even further. So the 2010 package increased Greek debts while making it even harder for them to make their payments.”
On top of this, Greece still can’t afford to make ends meet – which means they have to borrow money to keep the country running. But it cannot borrow from traditional markets because no one wants to lend to them. I mean, would you want to lend money to someone you thought could not repay it?
Details of New Package
You know how people can get their personal debt restructured? Well, that’s what is happening (again) with Greece. The idea is to take existing Greek debt and morph it into new bonds that have much longer maturities and much lower interest rates. Basically, imagine getting a long extension on paying back your debt at a much lower interest rate and that’s what’s happening here.| Print
Pages: 1 2