What are Greece’s financial options to pay back the money they owe?
- Debt rollovers. Greece can borrow money from other countries to pay off the debt they have incurred but they will be replacing their old debt with new debt. Essentially, they would be participating in something similar to a Ponzi scheme.
- Bailout. At this point, the chances Greece will be bailed out are slim. With other struggling economies in the Eurozone (Ireland, Spain, Italy, Belgium and Portugal to name a few) there isn’t enough money to provide bailout funds necessary to stabilize each economy.
- Leaving the EU17. If Greece stop using the Euro they would have the ability to print their own money again which means they would be able to control inflation rates to pay back debt.
Realistically, the only way Greece will be able to pay back their creditors, while still participating in the EU17, is to come up with some sort of acceptable solution between Greece and its creditors that isn’t perceived as a default. For example, if Greece were to sell promissory notes on the open market and then use the funds to pay off their debts it probably wouldn’t be considered a default.
Greece agreed to austerity measures. Doesn’t this mean the Greek economy will turn around?
- According an article by Tyler Cowen in the New York Times, the spending cuts Greece is contemplating would be equal to the US cutting $1.75-trillion from their budget. It’s just not realistic.
- It is highly unlikely Greece will actually be able to implement austerity measures. It almost seems like they were crossing their fingers behind their backs when they agreed to the austerity measures.
- At this point, Greece’s economy is highly illiquid. They are spending more than they can take in and their GDP is continuing to fall.
If Greece stops using the Euro, what would it mean?
- The concern here is that if Greece finds benefits to print their own currency other countries might follow suit.
- This would weaken confidence in the Euro.
For more on Greece’s financial crisis, read “Austerity Measures Approved in Greece.”
For more information on the economical state of the Eurozone read the following articles:
- “Fiscal Deficit Problems in the Eurozone”
- “Are the Fiscal Deficit Problems in the Eurozone fixable?”
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