Greece joined the Euro in 2001, and its confidence for the economy grew leading to a big economic boom. In 2007, the financial crisis hit 5,000 miles away in the United States. It then hit countries around the globe and every country in Europe experienced the recession but Greece suffered the most as it was one of the poorest countries and had a lot of debt at that time already. The unemployment rate reached 28% in 2013, which was worse than the United States during the Great Depression.
The government debt carried on rising and as it was the aftermath of the global financial crisis, investors were concerned that Greece would not be able to pay back their debt. This meant that it became expensive for Greece to borrow money, resulting to their first bail out loan in 2010. This was provided by the European Central Bank and the International Monetary Fund on a condition that they would decrease government spending. Many economists did not agree with this agreement and believe that it might be the reason for why Greece is in this situation. Government spending is important because it likely to increase aggregate demand and as it is an injection into the economy which could increase the rate of economic growth.
Greece could not pay their bills, interest/dividends on their bonds, payments due on loans nor could it pay for all the new jobs it had unwisely creates. This then led to a decrease in unemployment, a crisis of confidence, a decrease in foreign direct investment and political uncertainty. This debt carried on increasing. The Greek people have been rushing to ATMs to withdraw as much money as they can, after they have been giving a limit to withdraw up to sixty euros per day. The Greek government spent more than it received in revenue and over the years this accumulated deficit became extremely large compared to their GDP. Not to say that other countries do not have large deficits, the US deficit is large and growing larger and it is unsustainable; Japan’s debt is also very large.
However, the US and Japan are not considered broke, while Greece is because:
Japan’s currency (yen) and the US’s currency (euros), can be printed whenever needed (this will cause inflation in the future but they can use the printed money to pay their bills). Greece has to pay in euros, which cannot be printed whenever needed.
Also, creditors know that Japan and the US will be able to handle their problems and pay off their debts with valuable currency. But Greece, has failed to implement reforms and so creditors do not believe that they can pay off their debts.