It all started in 2009, when the Greek authorities divulged the budget deficit to be 12.9% of the Gross Domestic Product, which was four times the limit put on by the European Union. Greece had inadvertently become the epicentre of the debt crisis in Europe. This announcement raised questions about the competency of Greek finances.
Greece was barred from borrowing in the financial market in the aftermath. The country was swerving toward bankruptcy and this was a whole new level of financial crisis which would push the country to the edge of chaos. Troika- the European central bank, the International monetary fund and the European commission came to preclude the inbound calamity. Troika issued a 240 billion Euro bailout (first of the two). As usual, these bailouts came with certain conditions in which the lenders had imposed grating austerity terms. The austerity terms required steep tax increase and deep budget cuts. To overhaul the economy, the Greece government was also required to streamline itself, putting an end on tax evasion and making Greece an easier business place.
The bailout money merely helped the government to pay back the previous loan and money did not make its way into the economy. Many economists believed that the austerity terms had been causing trouble for the country all along and are responsible for the ‘humanitarian crisis’. The new Leftist Syriza party rode into power and the prime minster Alexis Tsipra promised to renegotiate the terms of the bailout.
Germany now blames Athens for failing the economic conduct and wanted them to follow the rules if austerity which shouldn’t be changed for anyone. Now Greece is running out of money and it is happening rapidly.
Now the million dollar question, should Greece exit Euro zone? Sure, falling back to Drachma seems viable option, but is this decision sound enough? Greece faces the problem of debt in both the situations- after leaving or staying. If they leave, the consequences will be beyond austerity plus the cascading defaults, including the funds from the IMF- will shut the Greece out of the international financial markets. Consequently, the FDI will evaporate.
If Greece stays, the renewed growth emphasis will be applied to Greece and with moderated austerity there might be some chances for Greece.