International Debt Crisis (H.W 5)

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International debt crisis
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Debt crisis have been an issue in many countries all over the world. The global financial crisis that affected almost all countries in the world left many countries crippling financially. One mighty economy that was highly hit by the global financial crisis in 2008 was the Greek economy. In this paper I will discuss the financial crisis in Greece and how the government handled the crisis with the help from the European zone central bank.
Greek economy was one of the fastest growing in the euro zone and since 2000 to 2007 it grew at an annual rate of 4.2% as foreign capital flooded the country. The government used currency devaluation to finance borrowing. They did not give the true financial position of the government thus borrowing money to finance their budget. Additionally, introduction of euro as the main currency in the region and global financial crisis in 2008 began to affect the financial position of the Greek government. In 2009, the revenue from the shipping and tourism industries fell by 15%. These two industries being the major industries the capability to fund services and paying debt became a crisis in Greece (Duthel, 2011).
Due to the above drastic change in the economic position in Greece, the European central bank suspended its minimum threshold for Greek debt for undisclosed period making the bond eligible as collateral despite their junk status. This guaranteed the Greek banks access to cheap central bank funding which made 10 years bond to trade at an effective 11.77 % by November 2010. In addition, the Greek government was given a loan of $ 146 billion with conditions that the government will push through 30 billion Euros budget cut which would amount to 13% of GDP (Lynn, 2010).
The Greek government through restructuring the government bonds with the bailout plan to cover all Greek financial needs from 2012-2014 the situation is improving. If Greece comply all the economic targets outlined in the bailout plan then the country is able to return in 2015. They can start implementing the private capital markets for debt refinance and as a mechanism to cover its future financial needs. However, the newly elected government in July 2012 requested creditors for two extra years up to 2017 before being required to be self financed, with minor budget deficits fully covered by extra ordinary income from privatization program (EM Publication, 2012).
In conclusion, the euro was created by an elite convinced that they were creating a better, more harmonious and more efficient Europe. But now it was being defended with teargas and...