Greece is the 43rd and 51st largest economy in the world at $242 billion by gross domestic product (GDP) [India economy is $2.308 trillion, count the difference and still we are a Developing Nation]. Among 28 members Euro Zone, Greece is the thirteenth-largest economy. The economy of Greece mainly revolves around the service sector (81%) and industry (16%), while agriculture made up an estimated 3.4% of the national economic output in 2012. The iconic Olive Oil of Europe, Greece as a producer of olive oil is third-largest in the world after Spain and Italy and its major market for the same is Europe Zone itself.Talking about Greece population, it was around 10.8 Mn with just around 1/4 of it below 25 age of which around half the youth facing unemployment problem. [I guess two to three trains from Mumbai would be enough to takeover Greece ;)….on funny note].
The hottest topic on world news that Greece has become the first Developed Nation to default on its external sovereign debt obligations. Mind you this is not the first time Greece has missed its debt obligations, it has defaulted five times which is way more than the default kings i.e. Venezuela and Ecuador. Below is the history of defaults:
1826: During the Greek War of Independence from the Ottoman Empire.
1843: Greece used funds from the Loan of 1832 on its military and “the upkeep of Otto, a Bavarian prince.” The country stopped making payments in 1843.
1860: After this default, Greece was kicked out of international markets until 1878.
1894: When the markets opened, lenders were overeager, borrowing increased to unsustainable levels, and the government suspended payments in 1893.
1932: This happened during the Great Depression.
Default of 2015:
It all started with the aftermath of world economic crisis of 2008. The external debt of Greece in 2008 was 109% of its GDP which had blown up to whooping 146% by 2010. All thanks to heavy social spending, corruption, unproductive uncompetitive government owned companies, tax evasion and others such reasons. Credit rating agencies as a response to the developing economic turmoil downgraded Greece to Junk grade [Self explanatory as the word Junk is!!]. So as an obvious thing borrowing from the private capital lending market had dried up for Greece.
To keep the Member country and the bonding in Euro Zone intact, the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) (together nicknamed the Troika) in May 2010 came forward by providing bailout loan to rescue Greece from sovereign default. Of-course certain condition were laid by the Godfather’s of Greece such as on implementation of austerity measures (Greeks do away your smoky, lazy and lavish lifestyle), structural reforms, and privatization of government assets. However, as lazy Greeks were the condition put down by Troika took time to get implemented and thus extended bailout time and funds were provided to Greece.
In 2014 the Greece economy showed some positive signs was ready to get access to private lending market. But thing went for toss with new recession starting in later end of 2014 which due to related to the premature snap parliamentary election announced in December 2014. Also a new Syriza-led government was forming which promoted itself as opposing to the the terms & condition laid by Troika. This made the Troika to suspend all scheduled remaining aid to Greece under its bailout programme until the Greek government either accepted the previously negotiated conditional payment terms or accept certain new condition laid by them for further extension of bailout programme. Thus things again went tough for Greece with its stock markets crashing down, squeezing liquidity and private creditors fleeing away.
All above led Greece to default on its $ 1.73 Billion payment to IMF on 2nd of July 2015. The SYRIZA led government had called for a referendum [is a direct vote on a ballot question which an entire electorate is asked to vote on a particular proposals]. In Greece the proposal is “to Accept the Austerity” vote as either “Yes” or “No”. “Yes” means Greece retains into Euro Zone gets the Financial Aid and “No” would probably result in Greece exiting European Union (the term GREXIT) [And………… would probably have to gift its huge Olive Oil produce to Russia or China to get some financial help :P]