We live in a world of consumerism. With the ability to buy an unlimited supply of goods with the swipe of a credit card or the click of a button, it’s no wonder that we live in a world with a lot of debt. Turning on the TV is proof of this, with many financial companies promising to help those in debt clear their loans.
Yet people in many countries still have a “spend now, pay later” attitude. The consequences of this are severe, as highlighted by Greece’s ongoing financial crisis.
Whenever economic troubles are mentioned, Greece often comes up in conversation, but what exactly is the Greek government debt crisis, and how did it start?
To understand Greece’s situation, we need to understand debt. Debt is not inherently bad, and debt can actually fuel economic growth. Loans in developed countries are often given at very low interest rates. This means that in many developed countries, loans are taken out to finance expansion. These loans make the government and the country richer which allows the government to repay the debt while still being better off.
But debt that cannot be paid back becomes a problem. This is exactly what happened to Greece. They got themselves into a lot of debt to try and build their economy to a standard where they could adopt the euro.
Some critics suggest that the Greek government was crafty with its accounts, only presenting a partial truth of their debt situation to the European Union. The full extent of Greece’s debt was only revealed in the late 2000s as the global financial crisis arrived, and Greece’s inability to pay all of its debtors became even less likely because of the global economic slowdown.
This had catastrophic consequences, not only for Greece, but for the rest of the EU, too. The EU and the International Monetary Fund (IMF) were both forced to bail out Greece – many European banks were heavily involved in lending Greece money, and so a Greek bankruptcy would result in Europe-wide economic meltdown.
Greece’s debt stands at US$366 billion – which is nearly double its Gross Domestic Product. To put this figure in perspective, it would take Greece over a decade of budget surplus to repay all its debt – a nearly impossible task given Greece’s economic situation. Even now, the Greek debt crisis continues to affect the country and the rest of the EU.
Greece’s debt crisis is an economic failure that should serve as a warning for our own behaviour. In many developed countries, including Hong Kong, people under the age of thirty are now the fastest growing group in terms of those that file for bankruptcy. This raises two important questions: are we going too far with our spending, and is it time to stop?