Understanding Greece Crisis : In layman Words

[Chanakyaa]

What is the Greek financial crisis? How do I explain it to a layman?

• Greece really likes taking care of his family. Some of his cousins and his older relatives struggle to find work, others don't like to work, and plenty see themselves as "too old" to work. So Greece helps out by sending them some money [Pensions and Unemployment].

• Greece's job doesn't cover all the money he spends on his family, So Greece got a credit card a long-time ago [National Debt].
• Greece told himself that he could manage his credit card balances. His friends' credit cards have much higher balances, and they can make their payments without any troubles. But Greece ignores the obvious: his friends make a lot more money than he does, and their credit card companies think that they'll continue to make more money. So they get better interest rates [High Debt-to-GDP, High Interest Rates].
• But—for a long time—things seemed alright. When Greece's credit card got too high he used a little accounting trick to say that he had more money than he did and he could make those high credit card payments. As long as he didn't do this everyday his credit card companies didn't mind too much [Printing Money to Fund Deficits].
• Then Greece saw his friends set up a cool club. Their club made it easy to do business with each other and that made his friends and their families happy. Greece believed joining that club would make him feel important, but when his friends joined they gave up some of their autonomy. If they got into trouble with their credit cards they couldn't do those accounting tricks that Greece did [Eurozone and the Euro and Ceding Monetary Control to the ECB].
• Still, Greece really wanted in. Deep down he knew that he had a problem and he needed to deal with it. Maybe he felt like an alcoholic. "If I join this club," he thought, "I can change my life for the better. I'll stop being so irresponsible with my money." To get into the club, Greece needed to show the other members that he wouldn't wreck their party if he joined. He made the case that they could trust him. He said: "here's all my financial information." He probably lied :/ Fact and Fiction in EU-Governmental Economic Data [Eurozone Reports].
• The club let Greece in. He thought: "I've made it! I'm one of the best!" He needed to tighten his belt. He knew that. But his family still counted on him to pay their rent. The club didn't allow Greece to spend so much money above his income, but Greece did it anyway. He felt an obligation to support his family. Maybe—like an alcoholic—Greece thought: "Tomorrow I'll change." Always tomorrow. But Greece didn't change fast enough[Greece Continues to Rack Up Debt].
• It didn't bother his club or his credit card companies too much at the time. When Greece got in trouble he just took out another credit card, and he used those new cards to charge the payments for his old cards [Issuing Debt to Make Debt Payments].
• Greece lost his job. He found another, but it only paid about 75% of what his old job paid him. And that job didn't always pay him what he deserved[Economic Downturn and Tax Fraud].
• Credit card companies got scared. The credit card companies' friends lent to other clients and got burned when some of those clients couldn't make their payments. They knew Greece struggled to get by, so they decided not to loan to him any more. Greece couldn't get another credit card to pay his old cards. How would he support his family? And how would he get a better job if he didn't have money to invest in himself? [2007-2010 Credit Crisis and Greece Gets Cut Off].
• Greece's club, with another bigger club, stepped into help. They didn't want to see Greece fail; if he did it might hurt all of them. Greece owed some members of this club, and their families, a lot of money. So they lent Greece the cash he needed to stay afloat. But that didn't make a big, important member happy. The clubs, and this big member, made demands. The big ones? Greece needed to ensure he got paid what he was due, and Greece could no longer support all his family members [ECB and IMF Step In, Germany Doesn't Like It, Conditions on Loans].
• Greece takes the money and now he can make his payments for another five years. But he doesn't cut his family off like the clubs told him to, and he can't stand up to his boss to get his rightful paycheck. Admittedly, Greece's family threatens to beat him up if he cuts them off. But still[Greece Doesn't Meet Terms of Loans].
• Greece's club worries about him. They make sure that if he can't pay they won't hurt. They buy insurance in case Greece can't pay, and they sell off Greek debt to cousins with a taste for risk [European Banks Hedge Risk of Greek Default].
• Payment time. The big club that helped Greece needs a payment. But Greece can't/won't make it. Greece can't bring himself to cut-off his family or ask his boss to stop cheating him. He didn't like the conditions, but he struggled to tell the club "no." So he let his family decide; they yelled "NO!" in their loudest voice, largely as a symbolic act of defiance. While the members of the club certainly feel free to dissent the vote, in general, exasperated them and made them feel like negotiations have just gotten tougher [Referendum on Bailout Conditions, Voting Down Expired Bailout Conditions, Various EU Members Respond].

 

[Goenitz]

nice effort

to be more dramatic... u might hv used indian name (karan or arjun ) or indian version of greek name...

 

[Nicky G]

Nice, though the role of intentional financial institutions needs to be highlighted more. I am completely against the socialistic tendencies of the Europeans, but that does not take away from the toxic role of dreamt up instruments such the CDS.

People in my experience, still don't understand that banks now have an incentive to issue bad debt that they know will never be paid off. Its understandable as such a line of thinking is intuitive and they don't comprehend the instruments that have been introduced to hide and play around with bad debt and ultimately to be bet against.

Greece doesn't belong in the EU. Let them default, move out of EU and debase their own currency and fix their own interest rates on bonds. Then after a few painful months, they may begin to recover. In the present form, this drama will occur ever six months for the foreseeable future.

This is anyway not a bailout of the Greek people but French and German banks who receive over 90% of the supposed Greek bailout money. They need to write off at least 25-30 % of the debt.

However, as long as the Greek continue to live in the fantasy that they can consume more than they can pay off, they will face another situation even if they somehow get out of this one.

 

[El Weirdo]

What is the Greek financial crisis? How do I explain it to a layman?

@XiNiX - did U take this answer from Quora right? , written by one...Evan Colvin?

 

[Chanakyaa]

@XiNiX - did U take this answer from Quora right? , written by one...Evan Colvin?

Exactly.