Imagine your friend borrows money from you and a few others promising to pay later. However, he does not have any income generation to pay back the loans. Gradually people realize his inability to pay back the debts and stop lending. Meanwhile your friend claims that he is absolutely bankrupt (i.e. defaults) and says he is absolutely unable to pay back anything at all.
Crudely put, this is what is happening in Greece. Greece is the friend who has ‘defaulted’. The lenders are the International Monetary Fund (IMF), the European Central Bank (ECB, which runs the Euro), European Union member states and private investors.
Greece is sunk in a debt as deep as 323 bn Euros, of which 60% comes from the ECB and 10% to the IMF. The historically rich nation has now met the deadlines and declared a ‘default’ on its ability to return the money, giving the lenders sleepless nights as a result. In this light, one need not have to think very hard to realize the kind of struggle the Greek citizens are involved in at this moment, with all things being taxed up to an additional 400% and no bank lending any money any longer.
So how did Greece get to this place of hopelessness? Amidst a number of political reasons and strategies, a few simple reasons why Greece cannot find the money to pay its debts are:
- Rampant Corruption
- Evasion of Taxes by citizens
- A huge number of ‘un’taxable Professions
- Few exports (few exports means that a country has little that the rest of the world would want to buy)
To capture the crisis, therefore, in just one line, we could say that Greece borrowed more than it could afford to pay back, and the creditors have now declined to lend any are asking back what it owes them.
Greek however won’t be the only country to fall; it’s simply the first!