GREECE’S default stand off is pushing the country to the brink to show that long term mismanagement of the national economy may lead its total collapse. The country has become the center of Europe’s biggest debt crisis now after the US went into recession in 2008. Greece announced in October 2009 that it had been understating the deficit figures for years and it stepped into the worst financial crisis of its modern time in few years next. Greece was immediately shut out from borrowing in international financial markets veering it toward bankruptcy by Spring 2010. It led to the collapse of many state institutions when the economy was failing to generate income to run the financial institutions.
The so-called troika — the International Monetary Fund, the European Central Bank and the European Commission stepped in to the scene to save the nation and offered the first of two bail out scheme to Greece, to provide Greece a total of over 240 billion euros or about $264 billion to rebuild the economy by bringing drastic reforms.
The bail out came with stringent conditions for implementing stringer austerity with deep budget cuts and tax increases, in addition to freezing pension payout for sometime until the financial system bounces back. Greece agreed to overhaul the economy by streamlining government expenditure, but its political leaders remained reluctant to stay popular with the people. They lost the vital opportunity to restructure the economy while using the loan money to repay the loans.
The left wing government was elected early this year to renegotiate the bail out programme as the new leaders sought to pass much of Greece’s financial perils back on to the creditors. New Leftist Prime Minister Tsipras now started blaming the bail out programme to have created a “humanitarian crisis” in Greece terming the conditions as humiliating to his nation. But EU creditors turned down his new terms for negotiation of the bail out programme.
Greece became the first developed country to default on Tuesday last failing to payment of USD 1.7 billion loans to the IMF further triggering the crisis. European Central Bank stopped releasing new debt money; which in turn forced the Greece government to close all banks leaving most families penniless in the streets. Prime Minister Tsipras has called for a referendum on Sunday asking the Greek people to reject the bail out. On the other European Commission President has termed Greek government refusal to go by the terms of the bail out equivalent to cheating. EU pleaders have warned Athens failing to honour the bail out conditions would risk the country to break apart from the Euro Zone. Most Greeks now blame Germany, Spain, Italy and IMF for denying renegotiation of the package and for their perils, but their leaders shot back saying they are also accountable to their taxpayers and Greece should not expect to live on others money without working to repay it.
The Greek episode must be an eye opener how state institutions run into collapse when the finance of the country is in the hands of weak leaders for too long. The signs are there that the latest bail out negotiation shall succeed. The Prime Minister of Greece has conveyed his readiness to accept to the deal.
