For last few months Greece Debt Crisis has found the headlines of most of the newspapers around the world. This article tries to explain how Greece landed in such a situation and what lessons every entrepreneur can take from it.
Let’s first understand a bit about the background of this crisis. Throughout the history European countries were busy in battles with each other. After the Second World War, Europe was in a very pathetic state, its economy crashed and their political authority in the world depleted.
This is when the European countries realized that they can’t afford more wars, they also realized the fact that in order to have their identities intact in the post-world war era they will need to resolve the differences amongst themselves to stabilize and again get that stature back in the world. This led to the formation of European Union.
In 1950, European leaders decided that peace can be achieved only through economic cooperation meaning countries who did business with each other would be less likely to go against war with each other.
To make economic integration possible a common currency the Euro was introduced and the countries which adopted the Euro formed the Eurozone and these Eurozone countries created European Central Bank (ECB) to make their economic policies.
Cause of the Crisis
The ECB was empowered to create monetary policies, whereas the rest of the fiscal policies were governed by respective Eurozone countries meaning, ECB could decide how much money is available in the market and what will be the interest rates whereas how much a government will lend or borrow was a matter of the respective government.
After the formation of ECB, small European countries were able to borrow money at a much cheaper rate as interest rates fell from higher 20% to 5% and that’s what Greece did, they borrowed a lot of money, to create people pleasing programs like low taxes, high pensions and salaries, and what they further did is pay off this debt from borrowing more money.
All this came to a halt around 2008, when the US economy crashed due to the turmoil in the US housing markets which sent the global economy towards a major slump. This meant borrowing stopped. Greece could not borrow no more and couldn’t pay off their debts which is around 175% of Greece’s GDP.
They were not even able to fulfill on the people pleasing programs they created. This resulted in unemployment, political instability and decrease in foreign investment which resulted in the suffering for entire Eurozone.
What Every Entrepreneur Can Learn From This Crisis?
Don’t Borrow Money If You Don’t Need It
Greece could have been in a better situation if they had managed their own funds well and invested in their infrastructure and people from their own money in places where it actually was required rather than creating pro popular policies. As an entrepreneur it is important that you make money decisions immaculately by planning ahead and spending wisely keeping in mind the impact of every decision of yours on your business and personal life.
Don’t Borrow Money If You Have No Clear Plan On How To Productively Utilize It
It is important that you don’t ask for investments or further investments if you are not clear where you want to move ahead or how you want to utilize the available funds to create more value or generate more return on investment.
Your Acts Also Affect The People Around You, So Act Responsibly
The Greece economic crisis has already affected the Eurozone adversely and in coming time the whole world will have to bear the aftershocks too, similar to this every entrepreneur needs to make decisions wisely keeping your employees, family and people around in mind, because each of your decision is going to have a positive or negative impact on them.
Never Borrow More Money If You Already Have a LOT Left To Pay
Greece borrowed more money to pay off old debt, I strongly suggest you don’t borrow more money till the time you have paid of your old debt unless you are getting at a cheaper rate, a discount and you can’t do without it.
Best wishes to your dreams!