Greece’s Debt Default 101 (And No, It’s Not the Right Time To Visit)

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As many Americans don't know or even care about what's happening with Greece's debt default, they really should, so here is a rundown of what's going on.
As many Americans don’t know or even care about what’s happening with Greece’s debt crisis, they really should, so here is a rundown of what’s going on.

Most Americans don’t know much about modern Greece. For the majority, the country’s recent debt default and “No” vote on another bailout is mostly confusing and uninteresting to the point of eye-rolling.

If Americans weren’t mostly ignorant of world financial markets and international politics, we probably wouldn’t need pieces like New York Magazine’s “The Absolute Moron’s Guide to the Greek Debt Crisis.” But since most fit that description, these are useful for an explanation of the ongoing crisis. One problem with that format, which took questions no one asked and provided attempts at witty answers, is oversimplification of a complex issue, but any concise unwrapping of the Greek mess needs to start simply.

Ordinary people who don’t work in finance couldn’t care less about the gritty details of Greece’s debt default. Most are much more likely to be curious about whether the situation makes it ripe for a cheap vacation to the nation — or if this means it’s now a good time to shop online for Greek goods.

Sadly, for travelers, Greece’s debt crisis doesn’t provide a good opportunity to visit. There will be more on that a little later, but first up are some unavoidable facts about its economy.

By way of entry to understanding this ongoing mess, begin with the differences between Europe’s biggest economy — Germany, which is also Greece’s largest lender by nation — and the borrower. Briefly looking at some numbers quickly tells the story.

By gross domestic product (GDP) Germany is a $3.2 trillion economy with an unemployment rate of 5.3 percent and foreign direct investment (FDI) of $26.7 billion. Contrast this with some of Greece’s vitals — a $267 billion economy, 27.6 percent unemployment and FDI inflow of $2.6 billion — and the differences between the two countries become quite clear.

Germany has been one of the harshest critics of Greece, and its leaders have thrown cold water on talk of debt forgiveness. Greece’s Prime Minister Alexis Tsipras came into power after the leftist Syriza party victories of 2015’s parliamentary elections, which formed the current government. Tsipras campaigned against austerity programs demanded by the country’s three lenders: the European Central Bank (ECB), International Monetary Fund and European Commission.

As part of previous loans made to prop up the Greek economy, the three institutions demanded, as conditions of assistance, that the country slash its budget and effect sharp tax increases to get on better financial footing.

Greece Poised for Economic Tragedy?

Tsipras deserves applause for not succumbing to the international game of chicken after Greece’s creditors basically dared the country to default on its loans. He faced the difficult choice of repaying lenders money the country doesn’t have or defaulting on its loans so the struggling nation can survive another day, week or month.

The Germans have some nerve playing hardball with Greece. Following World War II, when the German economy was a shambles, international institutions and national lenders, including Greece, forgave the country’s debt, which enabled and likely propelled the “German Miracle” economy of the post-war years.

Developing countries — what used to be called the Third World — have gone through this ringer many times before. A poor African country defaulting on billions in loans barely makes any headlines, but Greece — as the supposed first developed country to default — makes international news with its financial troubles. This reaction clearly illuminates that the world is really only concerned with the problems of developed nations.

European lender nations met Monday and will again Tuesday to discuss what to do next with the troubled Mediterranean nation. Many are fearful of the possibility that Greece could leave the 19-member Eurozone. If that does in fact happen, members shouldn’t be so surprised — and maybe it also wouldn’t be such a bad thing.

The Eurozone single currency system was created without force enough to compel individual nations to act domestically on financial and monetary policy, which could prove its ultimate undoing. Following the 1999 launch of the Euro, which is overseen by ECB, budget and tax policy were left up to member nations.

To oversimplify this convoluted relationship, this is like if the 50 U.S. states all did business with dollars managed by the Federal Reserve, but retained control over their own taxes and spending. That would make no sense and likely be disastrous. Unfortunately, however, this is the scenario that faces the Eurozone members today.

In healthy European economies, like England and Germany, these issues are mostly muted by their overall stability. But in much more vulnerable places like Greece, Spain or Portugal, cracks in the functioning of the domestic economy can have much more dire consequences.

As for traveling to Greece, it might be cheaper to fly now, hotel prices are surely low, visitors with American dollars stuffed in their pockets would probably be treated like kings, and goods are at rock-bottom prices, but being there would also be pretty depressing and tense.

Because while gorging yourself on spinach pies, Greek greens and yogurt, it might be a bit of an appetite killer to see people waiting in lines at the grocery store or going nuts over what to do next if the banks run out of money. It’s probably better to just stay in and watch the story unfold on the news. And if you get the craving, you could always order Greek in …

Noah Zuss is a reporter for TheBlot Magazine.

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