In early April, Greek Finance Minister, Yanis Varoufakis smoothed over some confidence inquiries into the country’s ability to pay off its debt. Many have been fearing default as the deadline for a large loan payment nears, which the government owed to International Monetary Fund. Citing that Greece plans to “meet all obligations to its creditors” Varoufakis aimed to give a boost to the peace of mind that many lenders have lost over the years.
Plans for the Greek Finance Department to reform their common practices and repair relationships with their lenders are already underway. This year to date, Greece has been borrowing from state entities and has not accepted bailout funding this August 2014. Due this Thursday, a 450 million euro loan is coming to maturity and due to the IMF, the source of some skepticism regarding Greek economic strength.
All indications are pointing to Greece making its payment by the due date. After a meeting between Varoufakis and the IMF Managing Director, Christine Lagarde cited that their conversation went well and all was on schedule.
Currently a number of banks who led the bailout effort have frozen their funds to support the country until their government rolls out a new financial reform package that meets the standard of the lenders. To ensure that money will not be lost, lenders turned down the initial proposal from the Greeks.
The funding freeze puts pressure on the country to find monetary ways of keeping their heads above water while reforms are drafted and reviewed. The government has assured that no pension or wage cuts will be present across the economic struggle and not at risk. Approval of reforms will lead to the freedom of 7.2 billion euros from its bailout agreement as well as 1.9 billion made in profits through Greek bonds from the European Central Bank.
For more financial updates and news please visit, Araceli Roiz‘s official website.
With every passing year, the World’s debt is slowly climbing. This increase in debt can be compared to a bubble waiting to burst. Although as a whole, debt is falling (in some countries), the amount of debt around the world is still historically high. The reason for the historically high amounts of debt is based on the glowing growth of the economy tied in with inflation falling, which causes interest and debt payments to rise. This so called ‘poison‘ combination causes households to simply not pay off debt collected. BBC reports, “There has also been a fall in inflation rates in many countries. Inflation can help limit debt burdens. Household incomes, company revenues and government tax receipts all rise but debt payments are often fixed. Low inflation, especially if it is lower than borrowers expected when they took their loan, weakens that process and leaves debt burdens heavier than they would have been.”
A major factor in this crisis is that Asian countries, in particular China, which is one of the largest players in the world’s economy has an extraordinary high peak in debt in the recent years. “In the case of China, the report describes the rise in debt as “stellar”. Excluding financial companies it has increased by 72 percentage points to a level far higher than any other emerging economy.” According to a BBC article, Turkey, Thailand, and Argentina have marked high increases in debt.
As for the US and UK, have been doing their part in terms of lowering the debt. Even though the government debt has been rising in both countries, which will most likely continue to rise, the household debt problem in these countries have dropped significantly. This can be accredited to a stable economy which leads to households paying back loans at a lower interest rate. Even though the World debt is getting to a point which is unsafe, Mark Carey of the US Federal Reserve believes the US is doing OK, “he would have toned down a little the size of the disaster we are facing, and that the situation is not as bad as described. He said there is no obvious downtrend in economic growth and pointed out that a great deal of American debt has a variable interest rate. That would reduce the debt burden as inflation falls.”
We can only hope that trends begin to change because once that bubble bursts the world’s economic state could go haywire. For more on this issue, please visit BBC‘s article on the World Debt Issue.