Greece now days is facing one of the biggest challenges of all times, when the country is literally on the verge of a bankruptcy and has to face a recession period of 3 years. The misery does not end over here; Greece is due to pay a total amount of 400 billion dollars and has to pay a part of it every month. After looking at the current situation of Greece the IMF (international monitoring fund) and EU (European Union) has announced one of the biggest bailout package in the recent history. They have offered Greece 95 billion dollars spread over 3 years with the condition that Greece reduces the public spending of the money and raise the revenue from the tax collection. Rating agencies all over the world have declared Greece as one of the highly risked place to invest.
There are a number of reasons that led Greece to a position where it is today. But following are a few reasons that are worth a discussion.Change of currency
One of the major reasons of economic crisis in Greece is their change of currency from drachma to Euro back in 2002. This made it easier for the country to borrow money in huge amounts. Public spending was at its peak in the last decade, with pays of the officials literally doubled and no consideration was paid to the tax collection and boosting tax revenues. Higher debt means higher premium from the investors and that is what started it all.
Greece had to take lots of loans from different investors and countries for many big projects which included the 2004 Olympics as well. And after a while it was noticed that the event went way over budget.
Tax to benefit ratio
Tax to benefit ratio was not maintained in Greece, where a lot was spent on benefits and less was done for getting returns in the form of taxes.
Investors in doubt
Greece’s current financial situation has put the investor in doubt and they are very reluctant to invest in a country that is already looking in the eyes of bankruptcy. This has made situation worse for other nations like Portugal.