Greece has been at the forefront of the euro zone debit crisis for nearly two years now. Whereas some of Europe’s northern nations like England and Germany remain afloat, the nations lining the Mediterranean have been steadily declining. Greece, the world’s 32nd largest economy has a 14.5 billion euro bond payment due in March. With a debt-to-GDP ratio of 160% and rising, it’s hardly a surprise to anyone that Greece is on the edge of default.
A massive public sector workforce, expensive cradle-to-grave entitlements and a host of budget waste have all contributed to their financial problems for decades. Not only is Greece poised to default, but that could set a horrible precedent to the rest of the world: You can borrow all you want, inflict horrible damage on the worlds financial system and not have to worry about paying back all you borrowed.
Greece is once again asking for a bailout, barely a month after the last one was given to help stabilize their economy. They are asking for 130 billion euros to avoid going into bankruptcy. Even with that bailout however, default could be inevitable. Credit rating agencies including Moody’s, Finch and Standard & Poor’s have been predicting default, sending the cash strapped country’s creditors into a panic.
Their private sector creditors could lose half of their investments at the least. As much as people talk about the need for fairness, and providing a social safety net for everyone, you cannot have this conversation without wondering how fair it is to those who lent the money to Greece.
This impending default was not the result of predatory lending or a massive ponzi scheme. The brutal truth of the issue is that Greece has done this to itself. As heart-breaking as it is, you cannot spend money you do not have and expect to keep your economy stable.
Greek Prime Minister Lucas Papademos, who took office in November, has been frantically trying to slow the economic decline of his country, but has had little success. He has since acknowledged that creditor losses should be expected. Tuesday marked the latest round of protests in Athens, as workers from the public and private sector took to the streets against further austerity measures.
It’s easy to understand how people may not exactly be smiling at the idea of additional tax hikes and spending cuts. Athens has been handing out entitlements and benefits like candy, and many Greek citizens have never known another way of life. To face it being taken away from you has to be disturbing. However, there comes a time when people have to learn to live a little less selfishly and not risk dragging down an entire continent with them.
The people protesting in Athens must realize that they have to take measures in order to save their country. If Greece defaults it will set a horrible precedent, damaging the global financial system. People will be less and less eager to lend money to troubled nations, and justifiably so. No one in their right mind would be willing to risk losing billions on an investment voluntarily.
Greece isn’t the only nation that could be facing default. Italy, Ireland, Spain, Portugal and even the United States, are all on the same trajectory. Whether we choose to do something about it, is up to us.
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