uld rise significantly.

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uld rise significantly.

Message  AjayBaji le Jeu 21 Juil - 11:53:01

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The reason it had to be bailed out was that it had become too expensive for it to borrow money commercially.

It had debts that needed to be paid and as it couldn't afford to borrow money from financial markets to pay them, it turned to the European Union and the International Monetary Fund.

The idea was to give Greece time to sort out its economy so that the cost for it to borrow money commercially would come down.

That has not yet happened. Indeed, the ratings agency S&P recently decided that Greece was the least credit-worthy country it monitors.

As a result, Greece has lots of debts that need to be paid, but it cannot afford to borrow commercially and does not have enough money from the first bail-out to pay them.

Why can't Greece just default on its debts?

If Greece were not a member of the eurozone, it might be tempted just to default on its debts, which would mean either declining to make interest payments or insisting that creditors agree to accept lower payments and write off some of the debt.

In the case of Greece, that would present enormous difficulties.

The rates of interest that eurozone governments have to pay have been kept low by the assumption that the European Union and the European Central Bank would provide assistance to eurozone countries to stop them defaulting.

If that turned out not to be the case, the cost of borrowing for many of the smaller EU states, some of which are already struggling to service their debts, would rise significantly.

It means that if Greece were to default, the Irish Republic and Portugal might have to default as well.

A default would also be bad news for the banks that have loaned large amounts of money to the governments of Portugal, the Irish Republic and Greece.

If all of those banks got into trouble, it would seriously test the resources of the European Central Bank, which has loaned large amounts of money to the banks involved and to the countries themselves.

AjayBaji

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Date d'inscription : 19/07/2011

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