By Sara Jamel Bangayan

With reports from Bethelmina Santos

It has not been long since Europe faced a major financial crisis. Since early 2010, the governments of some countries in Europe had unsustainable levels of government debt. Three of the member countries, namely, Greece, Portugal and Ireland, have sought help from other European countries and the International Monetary Fund (IMF) by taking out loans to keep their economies from deteriorating because of external debts.

Greece has the highest levels of public debt and budget deficit which is 12.7%. The national debt of the said country is 300 billion Euros or $413.6 billion. There were estimates that the debt would reach 120% of its gross domestic product (GDP) in 2010. Since Europe is known for its advanced economic status, Greece is the first European country to face intense financial pressures. It is also the first country to loan from other European Union members and the IMF for financial assistance.

Greece’s accumulated debt came from many years of uncontrolled spending, cheap lending and failure to implement financial reforms. When falsified statistical data were revealed, it was seen that the debt levels and budget deficits the country had exceeded the limits set by the European Union.

Greek Prime Minister George Papandreou was not able to accomplish his pre-election promises. Instead, he implemented harsh spending cuts since his government inherited the financial burden of the country. The taxes on fuel, tobacco and alcohol skyrocketed. The retirement age was raised by two years. The public sector pay was cut. The government applied tougher tax evasion rules. These were some of the moves Prime Minister Papandreou did to stop further downfall of Greece’s economy.

To halt the falling economy of Greece, all 16 countries comprising the European Union devised a rescue plan led by Germany’s chancellor, Angela Merkel. It would just be the last resort but the package consists of bilateral loans from countries in the common currency area and also some assistance from the IMF. Germany will be the main contributor followed by France.

Since there is a strong economic and political tie between the United States and the European Union, US will be greatly affected if the crisis continues to spread throughout Europe. US will export products to Europe and this will have a great impact if the Euros will depreciate against dollars. Even though US banks have little exposure to Greece, other potential exposures are higher and thus, will be affected too.

Even though Greece has a little economy, the crisis happening in the country created a huge impact on its neighboring countries, as well as to the US and to the rest of the world.