All About Greece Debt Crisis and Bailout byRajesh GoyalAds by Google I was thinking of writing an article on this topic for long but in view ofthe fast changing developments, I decided to write on this issue onceitwassettledtowardsadirection.Asonthedateofconcludingofthisarticle(17thJuly!1"#,thingshavestartedlookinguppositive and third bailout has been approved by $reece %arliament.$reece&ebtcrisis or$reece'risisiscomple(issuewithdifferente(pertstaking different views about the origin and reasons for this crisis. Iwill try to summarise these in simple words so that our readers canhave a grasp of the topic. )*n some earlier occasions we have foundthat our articles are +ust copied and pasted by other websites and areshownasiftheyaretherealauthorsofsucharticles.Itisethicalwrong. ,ou are free to study these but do not copy and post on otherwebsites, as comments or on blogs.,ou are welcome to give links forthis article - (A#$reece Joining the .uro /0ill !!1, currency of $reece was &rachma. In !!1, $reece +oined .uro. 0ill that time $reece was considered as middle class economybutwithpoorgovernance, andthuswasconsideredashigherriskinvestment economy as compared to other countries in the .urope.1henin!!1, $reece+oinedthe.uro, theperceptionofcreditorschanged and its credit risk was thought to be almost e2ual to$ermany, as both had the same currency as .uro and it was believedthat in case of problems, $ermany will come to the rescue of smallernations. 0hus, theseedsofpresent$reecedebtcrisisweresownwhenthis perceptionof lowriskfor $reece becameanormforinvestors. (3# After .ffects of $reece Joining .uro4one /*ncethisperceptionof lowriskfor$reecetookroots, investorsbeganlendingto$reeceatlowerratesi.e.aboutthesameratesasthey lendto$ermany5 0his was mainly onaccount of commonmonetary policy of .uro 4one.0his helped the economy of $reece togrowatfasterrate. 6owever,facedwiththissuddenavailabilityofcheap money, $reece began borrowing like cra4y and thus debtburdenstartedincreasing. Althoughtherewascommonmonetarypolicy for .uro 7one but there was no common 8iscal %olicy for .uro7oneandeachcountry followeditsownfiscal policy.0he$reekeconomy was one of the fastest growing in the .uro4one from !!! to!!7/ during this period it grew at an annual rate of 9.:, as foreigncapital flooded the country newly backed by the euro.6owever, suchinflowof foreigncapital ledtooverspendingbysuccessive$reecegovernments.&uetothis, thecountrycontinuedtorecordhighbudget deficits each year. (' # Impact of !!; 8inancial 'risis on $reece /After the !!; financial crisis, things started to get tough for $reece..very country in .urope faced a recession, but $reece was hit moreas it was one of the poorest andalready among most indebtedcountries in .urope.1e have seen above that $reece benefited from +oining .uro4one inthe initial years. 6owever, now under huge debt, it had little choicetoframeitsownmonetarypolicyas$reecehadtofollowthesamemonetary policies whichrest of the .urope. $ermansually, acountry facing a ?sudden stop@ in private investment and a high debtload allowsitscurrencytodepreciate(i.e., inflation#toencourageinvestment and to pay back the debt in cheaper currency, but $reecedid not have this option was it was tied to .uro.In late !!A,it came to light that till that time $reece has been fakingits budget deficits. 0his discrepancy was massive.*n "th Bovember!!A, the newly elected socialist %rime Cinister, $eorge %apandreoudisclosed that the yearDs budget deficit would be 1.7: of $&% ratherthan what early government had claimed to be mere E.7:. 0hus fearsdeveloped about $reeceFs ability to meet its debt obligations, due torevelations that previous data on government debt levels and deficitshad been misreported by the $reek government. 0his led to a crisisin confidence, indicated by a widening of bond yield spreads and thecost of risk insurance on credit default swaps compared to the other.uro4one countries G $ermany in particular. 0hus Heports in !!Aof fiscal mismanagementanddeceptionincreasedborrowingcostsfor$reeceandthiscombinationofeventsmeant, $reececouldnolonger borrow to finance its trade and budget deficits. All theaboveledtothestartofthe $reekgovernment country in !!A.0he rating of $reece continued to fall leadingto 0he $reekK$erman1!nion stick to their respective positions a renewed impasse is likely.0herefore, it may still take some more time before it is confirmed thatthe third bailout package will start rolling out. 0he whole crisis has been nicely summed up by a civil engineer from$reece when he acknowledged that P1e are .uropeFs bankrupt childand as a child, .urope has been supporting us for five years and toldus what we needed to do to get out of this situation. 1e did nothingand now we are paying the conse2uences.P