SamTrader1
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By BinaryOptionStrategy.com
Q. What is the core of the debt problem in Greece?
A. Greece has been living well above its means recently. This has led to an increasing amount of debt piling up. This in turn has been hurting their economy. While wages in the public sector have almost doubled over the last ten years public spending has shot up. So while the Greek Governments coffers were getting lower and lower there wasn’t enough tax money coming in. This is due in part to tax evasion or corporations hiding their money in offshore tax havens. While rich Greeks have enjoyed the countries benefits and public service offerings they have not been paying tax. Then comes the financial crisis of 2008 and you can see a country rocked to its very roots without the necessary backing to see it though the storm. Hence it was given 110b Euros of bailout loans in May 2010 to see it through.
Q. Why did Greece turn to the EU for bailouts?
A. Greece sought the help of the European Union (EU) and the International Monetary Fund (IMF) as an alternative to commercially backed loans. The loan repayments of the financial markets proved to be too expensive to clear the Greek debt. By taking a bailout from the EU and the IMF, the plan was, that the repayment rate would be much more affordable and give Greece a chance to stabilize its economy.
Q. Why was the second bailout so close to the first one?
The Greek economy never did balance itself out and it has massive debts still to be paid without enough funds left over from the bailout to clear them. Of all the countries monitored by the S&P Greece is given the least credit worthy than anywhere else in the world. Standard & Poor’s, downgraded Greece’s credit rating last month from B to triple C which is just two notches above default.
Q. Why doesn’t Greece just default on its debts?
Defaulting creditors would mean refusing to pay the interest payments on the loan or offering smaller payments or even requesting to have some of the debt written of. As Greece is a member of the Eurozone it’s not that easy. Eurozone members are offered low rates of repayment as it’s assumed that rather than them defaulting the ECB and the EU will provide necessary backing to stop this happening. A default would have massive impacts on the banks that loaned large amounts of money to Greece.
The same applies with the Irish Republic and Portugal too. If Greece defaults they might follow suit thus affecting the banks which loaned them massive amounts of money. The ECB would then have to try to help the banks and this would put heavy pressure on the ECB’s coffers. If a default did happen borrowing costs would be increased to make up the shortfall, thus making it harder for these countries to repay their burgeoning debts.
Q. What is the core of the debt problem in Greece?
A. Greece has been living well above its means recently. This has led to an increasing amount of debt piling up. This in turn has been hurting their economy. While wages in the public sector have almost doubled over the last ten years public spending has shot up. So while the Greek Governments coffers were getting lower and lower there wasn’t enough tax money coming in. This is due in part to tax evasion or corporations hiding their money in offshore tax havens. While rich Greeks have enjoyed the countries benefits and public service offerings they have not been paying tax. Then comes the financial crisis of 2008 and you can see a country rocked to its very roots without the necessary backing to see it though the storm. Hence it was given 110b Euros of bailout loans in May 2010 to see it through.
Q. Why did Greece turn to the EU for bailouts?
A. Greece sought the help of the European Union (EU) and the International Monetary Fund (IMF) as an alternative to commercially backed loans. The loan repayments of the financial markets proved to be too expensive to clear the Greek debt. By taking a bailout from the EU and the IMF, the plan was, that the repayment rate would be much more affordable and give Greece a chance to stabilize its economy.
Q. Why was the second bailout so close to the first one?
The Greek economy never did balance itself out and it has massive debts still to be paid without enough funds left over from the bailout to clear them. Of all the countries monitored by the S&P Greece is given the least credit worthy than anywhere else in the world. Standard & Poor’s, downgraded Greece’s credit rating last month from B to triple C which is just two notches above default.
Q. Why doesn’t Greece just default on its debts?
Defaulting creditors would mean refusing to pay the interest payments on the loan or offering smaller payments or even requesting to have some of the debt written of. As Greece is a member of the Eurozone it’s not that easy. Eurozone members are offered low rates of repayment as it’s assumed that rather than them defaulting the ECB and the EU will provide necessary backing to stop this happening. A default would have massive impacts on the banks that loaned large amounts of money to Greece.
The same applies with the Irish Republic and Portugal too. If Greece defaults they might follow suit thus affecting the banks which loaned them massive amounts of money. The ECB would then have to try to help the banks and this would put heavy pressure on the ECB’s coffers. If a default did happen borrowing costs would be increased to make up the shortfall, thus making it harder for these countries to repay their burgeoning debts.
