Greece, a country with huge financial problems, just elected Alexis Tsipras as their new prime
minister.
He promised to renegotiate with the EU for further
bailouts, in an attempt to stabilize the economy and lessen the debt burden on the Greece’s
population.
If he does not succeed there is a real chance that Greece could be on the brink of
bankruptcy again.
So, what happens when countries go bankrupt?
First of all, a country going bankrupt is much different from a corporation or a person
going
bankrupt.
If a corporation or a person declares bankruptcy, there are laws in place which help
both the defaulter and the creditor recoup losses.
But if an entire nation take a nosedive into
bankruptcy, it’s sometimes a free-for-all.
Historically, creditor nations were known to seize
assets by force, or blockade a country’s ports until debt payments resumed.
Even in 2012,
an Argentinian navy vessel was impounded in a port in Ghana because of disputes over
Argentina’s sovereign debt.
However, usually nowadays, long and complicated court battles are
the norm.
And in all cases, the outcomes are very unpredictable.
Many countries have been almost or completely bankrupt in recent history -- countries like
Greece, Ireland, Portugal, Pakistan, Spain, Argentina and Iceland.
Although there are many
unique circumstances that lead some countries to debt-crises, a weak government structure
and
out-of-control spending is typical.
That’s what happened to Argentina in the late 20th century.
The government announced in
2001 that it could not pay its foreign debt, and there was a cash flight from the banks
as people
withdrew their savings.
Protesters took to the streets as money problems grew, and a mob
forced the Argentinian president to flee in a helicopter.
Later, in 2003, the country stabilized
itself by addressing the currency exchange rate problems, encouraging economic growth,
and
negotiating foreign debt.
There are tons of factors that led to their recovery, but focusing in on
spending and getting help from the international community was paramount.
The financial crisis in Iceland was different.
In 2008, the main Icelandic banks failed, and the
government refused to bail them out.
This kept the government from over extending and risking
bankruptcy, but it also endangered the financial situation of their citizens.
To correct this, policy
makers took bailouts from the International Monetary Fund, which allowed them to build
and
protect social support programs and forgive homeowner debt.
Currently, Iceland is well on its
way to recovery with a low unemployment rate and growing economy.
As history shows there are many ways that countries have corrected bad financial situations.
We can’t say how Greece will move forward in the crises, but we can say that there are
options
and solutions to be found.
To find out more about the EU, the International Monetary Fund and many other major
international organizations check out our video on the International Alphabet soup of
acronyms
that are out there.