In 2015, one of the most astonishing news was that Greece formally defaulted on a $1.7 billion payment to the International Monetary Fund (IMF). It is shocking the world because Greece was the first developed country to default to the IMF, an organization of 188 nations that tries to keep the world economy stable (Greece Defaults on $1.7 Billion IMF Payment, 2016). Since 2008 Greece has suffered from a very serious debt crisis, the troika provided it with a 240 billion euro bailout, which came with strict austerity such as budget cut and tax increases. Apparently the austerity didn’t work well and caused a strong backlash in Greece. So that it was forced to make this unwilling decision. The debt made a country into a mess. It indicates that borrowing or lending money between two countries, or between countries and international organizations have more negative effects than positive outcomes to the debtors. Money is a double-edge sword. It can either build up or ruin a country by business relationship,
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The bailouts give rise to the famous “moral hazard” problem (Stiglitz, 2006). Moral hazard arises when a party does not bear all the risks associated with his action and as a result does not do everything he can to avoid the risk. In this case, the risk is of default, but Greece didn’t do much to avoid it. This is a display of no responsibility. To conclude, even though these countries, which can’t pay what they owe, have three alternatives. They are receiving more negative effects than positive outcomes. The debt forgiveness would weaken their self-determination. The restructuring would suffer their citizens and default would loose their reputation in the globe. The debtors should know well about the consequences before they make the decision to borrow money from other countries or international
The bailouts give rise to the famous “moral hazard” problem (Stiglitz, 2006). Moral hazard arises when a party does not bear all the risks associated with his action and as a result does not do everything he can to avoid the risk. In this case, the risk is of default, but Greece didn’t do much to avoid it. This is a display of no responsibility. To conclude, even though these countries, which can’t pay what they owe, have three alternatives. They are receiving more negative effects than positive outcomes. The debt forgiveness would weaken their self-determination. The restructuring would suffer their citizens and default would loose their reputation in the globe. The debtors should know well about the consequences before they make the decision to borrow money from other countries or international