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The Effects Of Greece’s Economic Situation

Countries are closely watching Greece across the world. With an economy in severe turmoil, many are nervous about the effects of Greece’s economic situation. Why does Greece, a small country in the southeastern part of Europe, have the potential to disrupt the economy of countries across the world? In addition to this, what are the effects of Greece’s economic situation on the rest of the world? With Greece being in the center of the news, it is obviously an important topic to become educated on. Here is what you need to know:

A little history lesson:

Greece’s economy is on the brink of collapse. The factors that led to Greece reaching this point are broad, but these factors worked together to bring Greece to the state that it is currently in. Over the past two decades, two of the factors that contributed to Greece’s economic downfall are its high unemployment rate and the country spending more money than it could afford. Rather than having a government with higher tax revenues than expenses, Greece’s expenses heavily outweighed its income. With each new election, as new leaders stepped in to lead the country, they would discover that the deficit was higher than had been described and reported. Because of the deficit, new leaders would then need to borrow more money in order to make up the difference.

When the financial crisis of 2008 occurred, the country was in no position to be able to handle the crisis well. Trying to struggle through the financial crisis, Greece reached a climax and called out for help in 2010. After already being in debt to its neighboring countries, Greece was in an even more unstable state and on the brink of a collapse. In its call for help, European countries such as France and Germany, the International Monetary Fund (IMF), and the European Central Bank came to Greece’s aid and enabled Greece to borrow more money. However, despite already having problems financially, Greece continued to spend more money than it could afford to spend.

On June 29th, Greece was supposed to make a payment of 1.5 billion euros to the International Monetary Fund. On June 29th, however, Greece did not make payments to these international creditors. This led to banks in Greece being forced to close. Then, on July 5th, Greece needed to make a decision about whether or not it would accept a referendum that would bail Greece out of their economic situation through austerity measures. These measures included Greece increasing taxes and cutting pensions.The people voted no, sending Greece into an even more unstable situation. With banks having been closed for over a week, Greek banks are in desperate need of cash. Without reaching a point of agreement with the European nations, however, Greece could be forced to leave the euro and bring back the Drachma.

Over the next few weeks, there are many meetings and discussions being held as to what Greece is going to do. The areas still in debate are: whether banks across Europe are going to provide the necessary euros needed to sustains Greece’s economy, whether the Drachma will be reinstated, and if the European countries are going to change the terms of the loans. One of the next big dates is going to be July 20th, when Greece is supposed to pay the ECB billions of euros. To fail to pay this debt could push Greece out of the eurozone.

How does this affect the rest of the world?

Greece’s economic situation is mainly affecting Europe. By Greece defaulting on the loans they borrowed from European banks, they put the European banks in an unstable situation. The banks that loaned Greece money are not going to receive the money they lent. Therefore, those banks are going to be in trouble of defaulting on loans that they had borrowed from other banks. And the cycle would continue. Countries throughout Europe that had invested in Greece through providing them loans are going to suffer a loss of money if Greece does not figure out a way to pay back their loans.

Another major way Greece’s economic situation is going to affect other countries is if Greece leaves the euro. Though Greece’s economy is small in comparison to the economies of other countries within the eurozone, Greece still has influence. If Greece leaves the euro, the borrowing costs for other countries within the eurozone are going to increase. This is going to have a larger affect on countries like Spain and Portugal, who also have struggling economies.

The majority of economists agree that Greece’s economic situation is not going to have a big effect on the U.S. One way Greece’s economic situation has affected the U.S. is by a fall in stocks. The biggest hit occurred on Monday, June 29th. On the following day, the stocks rose again, but with the situation in Greece yet to reach a conclusion, the stock market is going to have a few more ups and downs. The good news is that the stock market should not be affected as much as it was the last time Greece had a major economic crisis back in 2012.

When it comes to the housing market, the situation remains stable. Home prices and interest are still rising, but the rates at which they are rising are as to be expected. This means that the situation in Greece has not yet had any major effect on the housing market.

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