Greece default what does it mean

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I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. The financial crisis was largely the result of structural problems that ignored the loss of tax revenues due to systematic tax evasion. Greece's productivity was much less productive than other EU nations making Greek goods and services less competitive and plunging the nation into insurmountable debt during the global financial crisis.

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Partner Links. Learn About the European Sovereign Debt Crisis The European debt crisis refers to the struggle faced by Eurozone countries in paying off debts they had accumulated over decades. It began in and peaked between and Grexit Grexit, short for "Greek exit," refers to Greece's potential withdrawal from the eurozone and the reintroduction of the drachma as its currency.

Fiscal Imbalance Definition Fiscal imbalance is a situation in which the future incomes streams for unit of government do not balance the future debt and spending obligations.

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Big Data knows you're sick, tired and depressed. In such a situation, determining bank solvency is more art than science, so value judgement is unavoidable. But who are the authorities? The defaulting government and the central bank.

Either the government receives emergency funding, which is likely to be ruled out, or the central bank must foot the bill entirely on its own. That effectively means the ECB. As De Grauwe convincingly argued, the sovereign debt crisis only occurred because the euro was a foreign currency to Eurozone member countries. Since the onset of the slow-motion bank run, the ECB has dithered.

Its instrument, the Emergency Liquidity Assistance facility, leaves quite some discretion in the hands of the central bank. It has a ceiling, which it has raised repeatedly. It must list what is acceptable collateral, and the list has been repeatedly expanded. Since much of the collateral of Greek banks is soon-to-be-defaulted-upon Greek government debt, it is understandable that the ECB proceeds with caution.

What this all means is that, if the aim is to avoid a Grexit, it is not possible to wait for a default to happen. The vicious cycle that underpins the self-fulfilling prophecy must be broken now. That means ruling out either the first or the last step of the cycle. These announcements must be unconditional — independent of an agreement on the assistance programme — because it seems that such an agreement is beyond reach.

The problem is that European authorities are bound to find it politically impossible to give in, ditch the pre-existing agreement and abandon conditionality. Economically, they also face a conflict of interest. So far, however, the Europeans have not made any present to Greece, 2 only loans, initially on harsh financial conditions, then sweetened.

A default would turn the loans into presents. Making it possible for Greece to comfortably default does not seem appealing at all. National governments are elected by their citizens so they are most unlikely to act to prevent a Grexit.

One more time, we have to turn to the ECB, whose essential mandate is to uphold the Eurozone. This article is published in collaboration with VoxEU. Publication does not imply endorsement of views by the World Economic Forum. To keep up with the Agenda subscribe to our weekly newsletter. The views expressed in this article are those of the author alone and not the World Economic Forum.

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