Five years ago, Greece ran out of money due to overspending on public services, lack of income due to tax dodgers and a global recession where the financial markets of the world collapsed.
Greece says: Oh £$*%!
The European Union (EU) and the International Monetary Fund (IMF) bailed them out and lent them €240billion.
Greece says: You guys are the best.
The catch: Greece had to make several “austerity measures” meaning cutting billions from public services and raising taxes to raise more money.
Greece says: Urm, no.
The Greek people were very unhappy about these measures and voted in a new anti-austerity government last year, led by Prime Minister Alexis Tsipras.
Every time Greece gets another extension to its loan their government have to agree to certain changes imposed by Europe. These include dropping some of the anti-austerity measures that got them voted in. Not great news if you’re a politician.
If Greece can’t repay its debts and Europe refuses to cancel them Greece may be forced to exit the EU. Greek Exit = Grexit
If this happens Greece would be the first country in history to do so.
It could prompt other countries that have large debts – Spain and Portugal – to do the same.
Any country defaulting (not being able to pay back) on their debt would be a serious hit to the banks that gave them the loan and the value of the Euro would be affected. European banks would find it hard to borrow putting major strain on the economy.
Since the majority of Europe now uses the Euro – if a country were to leave the effects would be felt by all the other countries. Unstable Euro = Unstable Economy.