The Greek economy has shrunk to a quarter in last 05 years wherein now it faces bankruptcy and a rise in unemployment despite being helped by other creditors such as Germany, France, Italy, International Monetary Fund, ECB etc. An intervention of these exasperated creditors was necessitated in view of the crisis to advice Greece to implement austerity measures so that their economy can stabilize. However, Greeks see this as a “humanitarian crisis” since they had heavily depended upon social security policies ever since the Socialist Capitalist regime after the second World War came into power. After having an option to exit from European Union i.e “Grexit”, Greece decided to stay on and the Syriza party managed to hold the controversial referendum i.e. “Greferendum” to appease the citizens. The results of the referendum were in favor of Syriza urging them to uphold the government as well as impose the austerity measures which the people for obvious reasons vehemently opposed. After being granted 02 bailouts extensive negotiations have led to Greece being granted a 3rd bailout on the pre-conditions of higher taxation, austerity measures and reduction in pensions, which is likely to be opposed by the citizens but the government will have to accept it in order to prevent bankruptcy which is staring Greece. The 3rd bailout of Euro 85 billion requires that before 20th August 2015, Greece is to come to an agreement with the Troika for implementing economic reforms and austerity measures.
Greece, like many other European nations has social security policies such as pension, free education and unemployment benefits that require large amounts of government income being invested without them yielding any earnings. In order to maintain this fiscal deficit, these nations borrow from other nations wherein. This was being balanced well till World Financial Crisis in 2008, which effected all nations. Due to the crisis Greece could no longer borrow from the nations like Germany, France etc who were themselves struggling with the financial crisis. Greece the turned to the “Troika” namely European Union, International Monetary Fund and European Central Bank for loans. This helped Greece gradually but in the long term it started defaulting on repayments and in the year 2010 made them the largest debt defaulters. The troika and other creditors thereafter advised them to implement austerity measures but the Greeks kept sailing the same boat, which was on the verge of drowning. This default on payments and not heeding to the advice of the creditors has lead to the present crisis of Greece. Negotiations one after the other have eased the debt that Greece has to pay, yet they are unable to come out of this debt trap.
What one needs to keep in mind is that due to the situation that Greece is in, the Euro is at a risk of falling vis-a-viz US Dollar. This strengthening of the US Dollar would impact India as it exporter of commodities to Europe and the world, and this rise would increase the trade deficit, which is not good for any country. Another outcome of this crisis on India is the likelihood of capital outflow from India by the investors who have invested in Greece as well which means FIs would withdraw their investments from India in order to balance their losses in Greece .
This Greek crisis gives a message to all nations that they have to change with changing times and act responsibly wherein implement policies that are benefiting the nation and not only individuals. All nations should take this as a lesson and implement suitable policies to actually see overall growth.