A good question.

By now you may have heard the press going on about how the European country of Greece is broke. Greece has approached their European Union counterparts for a bailout and the global community has agreed to drop an estimated $146 billion US.

Greece is bankrupt based on several things:

1. The government spent more money on social programs than it could afford.
2. Greece has had a hard time finding outside investors and trade agreements in a slumping economy.
3. Taxes were too low to sustain spending.

Some in the blogosphere are suggesting Greece knowingly broke the rules. In an article from February 2010, James Turk claimed:

Greece broke the rules. The Greek government borrowed too much.  It spent too much. Because it broke the rules, it is not worthy to be included in the eurozone. So Greece should be expelled. Doing so would re-affirm the reliability of the euro and indeed, make credible the promise of every European government before joining the eurozone that it would follow the rules.

Two months later and the country is seeking aid. EU leaders who are being compassionate are being interrogated by their citizens.

Rippling Effects

German chancellor Angela Merkel lost a recent regional election after her party’s $28.2 billion US contribution left Germans stunned.

German opposition leader Frank-Walter Steinmeier of the Social Democrats seized this opportunity -

“No German government has managed to throw away so much respect and confidence as you have in such a short time…Where was the leadership? Where was the crisis management Mrs Merkel? We saw nothing.”

Unbalanced Budget

We are all used to hearing about private companies going bust, but the idea of a country going broke so rapidly is quite unusual.

Despite the aid pledges, many around the globe are urging Greece to rebuild domestically – basically save yourselves cause we don’t wanna get stuck with the tab mentality.

So Really, Why is Greece Broke?

After further research, it was learned that Greece, much like many other countries, had an excellent economy during the first half of the 2000′s.

Primarily, Greece’s shopping and tourism industries boomed.  As the recession hit the rest of the western world, Greece continued to maintain 100% GDP and invested heavily in structural development and social programs not anticipating the economic turmoil would reach its way.

This was not to be – other countries went broke and stopped travelling to Greece.

In terms of their ability to sustain themselves domestically, oil energy consumption was 400 times more than production in 2006. Since the world has reached peak oil, I don’t imagine it to increase.

The next few weeks will show us how the first, real, economic test will be answered by the EU – and whether Greece is an example of what’s ahead internationally.

Please add your comments below as to what factors you think have led to the financial situation in Greece.

- Riaz Sidi

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