Jan 23

What has happened to Greece?

Greece now is in really desperate condition. The national debt has been predicted to reach 135% of its GDP. How could a EU member get trapped in such a predicament?
You first reaction might be that it is our bad. Our subprime crisis leads to global economic tremors. Well, that is true in most country, but not exactly the case in Greece. The central bank of Greece did not badly engaged in the so-called “toxic waste” investment. America affected Greece more in an indirect way.
Greece is not an industrial country, which, like China, stimulates GDP by exporting. Instead, it heavily relies on international service including tourism and shipping. However, because of the global crisis, people cut their spending mostly by canceling trips rather than save on food or other necessities. What’s more, as the cool down of global trade, shipping industry reached its bottom since the 21st century. Both of those restricted Greek economy and sharply reduced its national revenue.
Earning less money was just one respect of Greek political and banking crisis. On the other hand, Greek national bank’s debt-investing strategy has put heavy debt (most from German) burden on Greece.
Instead of buying bad mortgage from US, Greek banks focused on some tough acquisitions in those relatively undeveloped countries before the subprime crisis exploded in US. Greek national banks’ acquisition of Finansbank in Turkey turned out to consist most of its debt now.
As Greek GDP of 2009 did not reach its expectation, its debt did not decrease. That is, Greek actual budget deficit turn out to be 12.7 percent in 2009 rather than the predicted 6 per cent. The more than 6 per cent difference far exceeds EU’s relative 3% max policy. The deficit estimation is as high as 9.4 percent in 2010. Those factors had bad influence on Greek national credit, which would make Greece even harder to raise money from financial market. Once Greece cannot afford to pay the debt by refinancing on financial market, it may face the situation of insolvency.
Above is how Greek Crisis is caused. The process of its forming is muck like the Iceland Crisis. However, Greece is a EU member, but Iceland is not. The close interaction between EU and Greece have affected the crisis and produced other influence. I will try to analyze the influence and how EU engaged in my next daily.