Greece takes center stage again in the markets as investors worldwide get spooked by the increasingly alarming situation in European government debt. But why does Greece, a country that has only 1/3rd the GDP of India and just 2% of the Eurozone economy, matter to world markets?
It's not just Greece. Portugal, Italy, Ireland and Spain - known with Greece as PIIGS - are also in some danger. All these countries have borrowed a lot during good times, and now it's time to pay that money back. Unfortunately, the economies haven't recovered much from the recession in 2008, and some of them run large deficits - meaning, amounts by which expenses exceed revenues, so they can't pay everything back just yet.
Here's how this works. Governments borrow to meet expenses or for capital expenditure (such as building infrastructure). These loans are either short-term, with less than a year to maturity (sold as treasury-bills), or long-term (bonds). The interest rate paid on these loans is usually very
Read More »from The Problem with Greece