HOW DID IT ALL START?
Let me explain the Greek crisis in Layman’s term.
It all started when the Greek Govt. needed money.The Greeks could have got external loans(IMF,World Bank and other big honchos) but the Greeks chose sovereign(internal debts-raising money from common people) debt to raise money as they had borrowed enough money from IMF earlier. They issued bonds. What are bonds? A paper just like a stamp paper(with the govt. seal) which has printed on it the worth of the bond and repayment date.Obviously the bond buyer gets good interest and it is considered safe(gilt-edged) due to government involvement.
Now here started the problem. The Greek govt. borrowed about 14% of their GDP from public against the allowed 3%(fixed by EU). Now all this stuff comes out in open. People are afraid.Greek government has no money to payback the debts. Now the EU comes to play saying “I will pay ur debts. But u have to close PSUs in heavy loss, cut jobs…”. The Government agrees. But the people start rioting(who likes job cuts?). Now the debts are paid by EU(not complete bailout). A sigh of relief for some time.
But now the new Government comes and it gets in a deadlock over bailout terms with EU. There were rumours of exit of Greece from EU with Greece reverting to their old currency drachma. Now the govt. has stopped paying the debts to IMF and other creditors. IMF has given a deadline to pay back the debt.
So the other Euro nations would also want to withdraw their money from Greek accounts.Unable to borrow from anyone (not even other Euro governments.), the Greek govt. simply runs out of euros. It has to pay civil servants wages until the new drachma currency can be introduced. There would be a complete collapse of the financial system. Also signals of negative impression among the investors all over the world, that Euro countries are not trustworthy, hence they’ll not lend to other countries such as Spain or Italy and if they lend, they’ll charge heavy interest rate. Now Spain or Italy is in trouble too. Further it may lead to weaking of Euro.
WHY IT IS A PROBLEM FOR INDIA?
Nervous investors around the world may start selling off risky investments Bonds and Equities coming from Greece(darr sabko lgta hai\everyone fears something).
When investors take out their money from Greece, they’ll most likely convert it into Dollars and invest it US(bharose waala desh/trustworthy nation). Means less “supply” Dollar in the international market. So dollar becomes more expensive, you’ve to offer more rupees to buy same amount of dollar. 1$ might become Rs.80 ; crude oil expensive = everything becomes more expensive.Some of above investors may also invest in gold, (After loosing faith in bond market) Gold becomes more expensive.
Credit Rating(Like CRISIL, MOODYs, standards and poor etc.) agencies are not very happy with India’s performance, they’re unlikely to increase our credit rating(good rating means more investors believe in you ) leading to less investment in India(less bharosa/trust).Seeing the situation of Greece people the citizens of other European nations will try to save more .So less spending on luxury items = less demand for Indian jewels,textiles and other exports.
Indian investor’s investment in Greece will also be hooked.All this leads to sensex going down.Market falls.
Post Credits to Snehal Azad from Quora
P.S: This post has been taken from Quora as it is.