We sat and saw with bated breath the 'Drama of the Drachma' as Greece Prime minister Alexis Tsipras, looked for an 'honest compromise' for the mammoth debt restructuring for his country, while the country itself remained divided on whether they wanted to stay in the Eurozone or go with their own Drachma. The drama was akin to that of draconian landlords in India who not too long ago and perhaps still in some areas, held the noose on the farmers, tightening it every year and never letting them off as they argued for the repayment of their loans and the never ending interests.
The Looming Debt
Greece had been bailed out before and sought a new relief bailout in the backdrop of its looming debt.
On 2 May 2010, the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF), later nicknamed the Troika, launched a €110 billion bailout loan to rescue Greece from sovereign default and cover its financial needs throughout May 2010 until June 2013 conditional on implementation of austerity measures, structural reforms, and privatization of government assets. The relief as some called it, stemmed from the belief or rather the fear that 'Grexit' or removal of Greece from the Eurozone could spell disaster for the Euro and for the world economy.
In reality, the problem was more basic and internal than that. It was the problem of balance of payments. Clearly, the Greeks were spending more than they were supposed to, creating more domestic debt. In layman terms, the country was borrowing money to spend on keeping the economy afloat as the GDP loomed further. Was it wise on the part of the part of the government to keep spending at the same rate? Was it wise on the part of Troika to bail them out probably aware they would perhaps default on the payouts yet again as the economy was just not generating enough to keep them afloat?
On 5 July 2015 the Greek voters passed a referendum rejecting the terms of a bailout proposition with 61 percent voting 'No' against the austerity measures boosting the leftwing Prime Minister Alexis Tsipras stance to keep the country's pride. However, the rising debt which pushed the request for the bailout of 7.2 billion euro pushed them towards Eurozone instead of the Drachma, much against the ire of the local population who had faced the brunt of the previous austerity measures. Although Tsipras argued that the vote "is not a mandate of rupture with Europe, but a mandate that bolsters our negotiating strength to achieve a viable deal".
The deal struck after much negotiations entails:
• tax rise on shipping companies
• unifying VAT rates at standard 23%, including restaurants and catering
• phasing out solidarity grant for pensioners by 2019
• €300m ($332m; £216m) defence spending cuts by 2016
• privatisation of ports and sell-off of remaining shares in telecoms giant OTE
• scrapping 30% tax break for wealthiest islands
In a nutshell Greece has created a T-Rex to kill the elephant.
Can this happen to us?
The larger question we all face is Can the Greece story be repeated? Can this happen to us? The answer is a simple and straightforward 'yes'. Yes it can. Although, debt in itself is not bad or odious if it is used for investment to generate future cash flow and positive return above the cost of debt. However, if we are spending more than we earn and borrow to sustain our consumption, we are increasing our debt without the assurance to pay it back. India has been given $16.83 billion as loans by IBRD in the year 2015 alone. As long as a country follows the conventional wisdom of not spending more than we earn it can save itself and the people of the country. Being prudent in money matters would only save the country from being run by its' creditors.
