Why Greece should be bailed out

                  

Let me break it to you except to those who know economics really well...

Assuming Greece leaves the Euro,a number needles poke right into the bubble we are presently living on.

Greek meltdown 

Banks in Greece would be the first to get hit thus CASA accounts get frozen due to which businesses fall steeply.The new currency would take a long time to gain its exchange rate causing costly imports.

Bank runs

Common people would start remitting their money before things go bad which actually amplifies the issue because it leaves the banks short of money to run the government.Investors along with lenders would try shifting their money to safe havens making the issue worse ,like a domino effect.Foreign investors in Europe would back off seeing the upcoming picture which might cause another recession like the hit on 2008.

Business bankruptcies

In simple words businesses running in debts would face a really bad time.Reason is that businesses in Greece which had debts would be in Euros but after exiting, the new currency would be devalued creating a situation where the debts are way bigger than the actual company itself.

Sovereign debt crisis

The funds borrowed from its citizens and from investors around the world is called sovereign debt.Now if Greece leaves the euro it would send a message to the world about the threat in investments around Greece which ultimately leaves Europe in big trouble.Now that is where the world comes to know that the domino is falling on their country too, as Europe is a market which buys.

Market turmoil

Low confidence on Greece due to the exit of euro would lead businesses and investors in a storm creating a downfall in share prices of companies in Europe.

Political backlash

European Central Bank (Like the core bank of India-Reserve Bank of India) would be in big trouble lending money to other countries as there can be a nationwide protest in Greece creating problems to France ,Spain and Italy which needs help of ECB very much.

Recession

Banks in Eurozone run out of liquid assets due to the crisis causing an increase of lending rates(C.R.R) to limit the outflow of cash.Businesses face trouble thus cutting down employment. Here media is a catalyst because common people aware of this situation cut down on their expenses leading euro zone into recession.

Euro value falls steeply which affects the exports of many countries.This effect can lead to a recession similar to the 2008 hit.

Greek debt default

The government which is run by civil servants and investors would face problems as the liquid assets are depleting or devalued.Greece would not be in a position to borrow from any country, also leaving it to default on the repayment of 240 Billion Euros from IMF and a 100 Billion Euros from ECB which would create a havoc in the economy.

The option of exiting euro is almost fatal to Greece and  its neighboring countries economy which brings us to the other option, How will Greece quarantine this situation? -I will discuss about it in my next post

Image source : euro crisis