The world is fretting over the potential default by the Greek government on the debt it has issued. Various scenarios are being envisaged and implications being discussed by Central Banks, Governments, economists and analysts alike. A similar scenario was witnessed just last year. At the time, members of the European Union stepped in to ‘bailout’ (word of the year nominee) to the errant nation.
Greece piled up the debt to fund its infrastructure investment when they hosted the Olympics in 2004. Time has now come to repay these debts and the coffers are empty. The sustainability of the infrastructure has been questionable right from the beginning. Huge stadiums with no utilization plans post the event, swimming pools rotting, velodrome covered with dust and a hockey arena which hasn’t been used since (no one plays hockey in Greece apparently!!). This is just about stadiums and sporting facilities. Greece upgraded its airport (old one lies unused now), updated its metro systems, built a tram network and improved its road. The infrastructure created is a positive but the huge operating costs are unsustainable.
It is not just the Olympics that have single handedly caused the spiral of the nation. There are various other factors that have contributed to this situation. The major factors are government policy on pension, taxation systems, government employee salary structures and corruption amongst others.
It’s no longer the issue of interest or principal not being paid to lenders. Huge amounts of derivatives and insurance (hedging) products are issued based on this debt. So it is possible that entities insuring Greece does not default will face billions in claims which could potentially render them insolvent.
Bailing out Greece will not cost too much financially (in the region of $100bn, a drop in the ocean) but raises the further complications of how many such nations will wander the path of default knowing they will be bailed. When Lehmann went bust, the world discovered that they had hardly imagined the consequences.
If Greece goes bust, we may just revisit the experience of the last few years. A déjà vu of sorts with a hint of Greek Tragedy!!
Greece piled up the debt to fund its infrastructure investment when they hosted the Olympics in 2004. Time has now come to repay these debts and the coffers are empty. The sustainability of the infrastructure has been questionable right from the beginning. Huge stadiums with no utilization plans post the event, swimming pools rotting, velodrome covered with dust and a hockey arena which hasn’t been used since (no one plays hockey in Greece apparently!!). This is just about stadiums and sporting facilities. Greece upgraded its airport (old one lies unused now), updated its metro systems, built a tram network and improved its road. The infrastructure created is a positive but the huge operating costs are unsustainable.
It is not just the Olympics that have single handedly caused the spiral of the nation. There are various other factors that have contributed to this situation. The major factors are government policy on pension, taxation systems, government employee salary structures and corruption amongst others.
It’s no longer the issue of interest or principal not being paid to lenders. Huge amounts of derivatives and insurance (hedging) products are issued based on this debt. So it is possible that entities insuring Greece does not default will face billions in claims which could potentially render them insolvent.
Bailing out Greece will not cost too much financially (in the region of $100bn, a drop in the ocean) but raises the further complications of how many such nations will wander the path of default knowing they will be bailed. When Lehmann went bust, the world discovered that they had hardly imagined the consequences.
If Greece goes bust, we may just revisit the experience of the last few years. A déjà vu of sorts with a hint of Greek Tragedy!!
