Greeces Debt Crisis Explained

The question of how to save Greece, debated for more than five years, is the European
Unions recurring nightmare. After the countrys citizens voted to reject the terms of a new
bailout by international creditors, Greece risks having to leave the 19-nation eurozone and
abandoning the shared euro currency, a move that could destabilize the region and
reverberate around the globe.
Whats the latest?
Frustrated European leaders gave Greece until Sunday to reach a bailout agreement after an
emergency summit on Tuesday ended without the Athens government offering a substantive
new proposal to resolve its debt crisis.
Prime Minister Alexis Tsipras's government on Thursday agreed to meet most of the terms
demanded by its creditors, and it requested a three-year bailout of 53.5 billion euros, or $59
billion, as a starting point for talks about possible debt relief.
What happens next?
Thats the billion-euro question.
Greek citizens decidedly rejected the terms of an international bailout in a referendum last
weekend. The Greek governments victory in the referendum, however, settled little, since
the creditors offer was technically no longer on the table.
All 28 European Union leaders will now gather at a summit on Sunday for what has been
described as a final chance to resolve the Greek crisis.
The next major deadline for Greece is in late July, when a 3.5 billion euro payment that
Greece owes the European Central Bank comes due. The E.C.B. on Monday said it would
continue to make 89 billion euros, or about $98.4 billion, in emergency loans available to
Greek banks. It is enough to keep the banks from failing but not enough to prevent them
from running out of cash that they can issue to depositors within a few days.
If there is no international bailout program in place by the July deadline, and little chance of
such a program being in the works, the central bank at that point would probably have to
finally take Greek banks off life support. Many analysts say Greece cannot miss that
payment without leaving the eurozone.
Did Greece default on its debt?

When borrowers whether they are countries, companies or individuals do not pay their
debts on time, they are in default. For practical purposes, then, Greece which on Tuesday
failed to make a scheduled debt repayment of about 1.5 billion euros, or $1.7 billion, to the
International Monetary Fund has defaulted.
The I.M.F., however, does not use the term default. It instead places countries that miss their
payments in what it calls arrears.
Semantics aside, missing the payment might lead to a situation in which other large Greek
debts are classified as being in default.
A default, even when it is not called one, is an event that can have serious repercussions for
a countrys economy and relations with other nations. Defaults can upset financial markets,
create uncertainty for other lenders, and generally crimp economic activity.
Greeces Creditors

How does the crisis affect the global financial system?

In the European Union, most real decision-making power, particularly on matters involving
politically delicate things like money and migrants, rests with 28 national governments, each
one beholden to its voters and taxpayers. This tension has grown only more acute since the
January 1999 introduction of the euro, which now binds 19 nations into a single currency
zone watched over by the European Central Bank but leaves budget and tax policy in the
hands of each country, an arrangement that some economists believe was doomed from the
start.
Since Greeces debt crisis began in 2010, most international banks and foreign investors
have sold their Greek bonds and other holdings, so they are no longer vulnerable to what
happens in Greece. (Some private investors who subsequently plowed back into Greek
bonds, betting on a comeback, regret that decision.)
And in the meantime, the other crisis countries in the eurozone, like Portugal, Ireland and
Spain, have taken steps to overhaul their economies and are much less vulnerable to market
contagion than they were a few years ago.
Debt in the European Union
Gross government debt as a percentage of gross domestic product plotted through the
fourth quarter of 2014.

How likely is there to be a Grexit?

At the height of the debt crisis a few years ago, many experts worried that Greeces
problems would spill over to the rest of the world. If Greece defaulted on its debt and exited
the eurozone, they argued, it might create global financial shocks bigger than the collapse of
Lehman Brothers did.
Now, however, some people believe that if Greece were to leave the currency union, in what
is known as a Grexit, it wouldnt be such a catastrophe. Europe has put up safeguards to
limit the so-called financial contagion, in an effort to keep the problems from spreading to
other countries. Greece, just a tiny part of the eurozone economy, could regain financial
autonomy by leaving, these people contend and the eurozone would actually be better off
without a country that seems to constantly need its neighbors support.
Greeces G.D.P. and Unemployment Rates in Europe
First quarter 2015 average; *Britain is the three-month average through February.

Others say thats too simplistic a view. Despite the frustration of endless negotiations,
European political leaders see a united Europe as an imperative. At the same time, they still
havent fixed some of the biggest shortcomings of the eurozones structure by creating a
more federal-style system of transferring money as needed among members the way the
United States does among its various states.
Exiting the euro currency union and the European Union would also involve a legal minefield
that no country has yet ventured to cross. There are also no provisions for departure,
voluntary or forced, from the euro currency union.

How did Greece get to this point?

Greece became the epicenter of Europes debt crisis after Wall Street imploded in 2008. With
global financial markets still reeling, Greece announced in October 2009 that it had been
understating its deficit figures for years, raising alarms about the soundness of Greek
finances.
Suddenly, Greece was shut out from borrowing in the financial markets. By the spring of
2010, it was veering toward bankruptcy, which threatened to set off a new financial crisis.
To avert calamity, the so-called troika the International Monetary Fund, the European
Central Bank and the European Commission issued the first of two international bailouts
for Greece, which would eventually total more than 240 billion euros, or about $264 billion at
todays exchange rates.
The bailouts came with conditions. Lenders imposed harsh austerity terms, requiring deep
budget cuts and steep tax increases. They also required Greece to overhaul its economy by
streamlining the government, ending tax evasion and making Greece an easier place to do
business.
If Greece has received billions in bailouts, why is there still a crisis?
The money was supposed to buy Greece time to stabilize its finances and quell market fears
that the euro union itself could break up. While it has helped, Greeces economic problems
havent gone away. The economy has shrunk by a quarter in five years, and unemployment
is above 25 percent.
The bailout money mainly goes toward paying off Greeces international loans, rather than
making its way into the economy. And the government still has a staggering debt load that it
cannot begin to pay down unless a recovery takes hold.
Many economists, and many Greeks, blame the austerity measures for much of the
countrys continuing problems. The leftist Syriza party rode to power this year promising to
renegotiate the bailout; Mr. Tsipras said that austerity had created a humanitarian crisis in
Greece.
But the countrys exasperated creditors, especially Germany, blame Athens for failing to
conduct the economic overhauls required under its bailout agreement. They dont want to
change the rules for Greece.
As the debate rages, the only thing everyone agrees on is that Greece is yet again running
out of money and fast.