system
Given the following post, respond as if you're commenting on Reddit:
human
What is the Greek debt crisis and how does it affect the strength of the Euro?
gpt
The Greek economy is in a lot of trouble. The greeks spend a lot more than they earn in taxes, and so have been borrowing money for a while. They have now borrowed a lot of money. People who lend Greece money think that Greece is not likely to pay them back, so they are demanding more interest in exchange for the higher risk of lending Greece more money when Greece already owes so much money.

In this situation, Greece can no longer afford to continue borrowing at the market rate. The problem is if Greece cant borrow, it cant pay out what it owes. This is called a fiscal crisis. Its as if tomorrow you had 100$ and 200$ of bills. You're simply in a lot of trouble.

The usual situation here is to "devalue" your currency. This means you simply announce that today if 1 Greek Drachma was worth 1 dollar, tomorrow 1 greek drachma is only worth 80 cents (or something like that). Then when you owe people a Drachma, you can print some extra drachmas (so if there are 100 Drachmas currently in society, you print 25 more and hand it to the creditors. Since there were 100 and now there are 125, this is why the drachma is now worth only 80 cents).

Usually people get angry when you do that, and raise interest rates. But it is still manageable.

The problem is that Greece is part of the Eurozone. This means they no longer have control over their currency --- they dont have the power to devalue it any more. This means that the usual escape route for such a situation, as bad as it is, isn't available. So the outlook is actually worse. Now the problem is that when they started the Eurozone, they made some strict rules about government spending so that any individual government couldn't come up in this situation. Over time, they started turning a blind eye to poorer countries like Portugal, Greece and Ireland who were clearly not able to keep up but were pretending to using some accounting tricks.

Now Greece can't borrow money from the market (because people don't want to lend Greece money because they are pretty sure Greece won't pay them back and they are mostly correct) without paying very high interest rates. But if greece collapses this is bad for the whole of Europe, so some richer countries like Germany decided to step in and help Greece out. This is mostly altruistic in nature and expensive for Germany but they will do it any way, because if Greece defaults, this is bad for a lot of people as a whole.

The problem is that the debt that Greece owes is owed to banks in Germany, USA, England, etc. So none of these countries want Greece to collapse (because then they definitely won't get their money back). So they want to help Greece so that Greece recovers and eventually pays the money back rather than collapsing into Anarchy. So they force Greece to go into "austerity" (i.e. stop spending so much money and raise taxes). Greek people don't like this because they are mostly used to large pensions and retiring at 55 and now Germany is saying that they can't do that any more. So they riot and protest. Germany says that they aren't helping Greece with free money unless Greece becomes a little better with managing its money (because Germans don't get to retire so early and don't have such nice pensions either, so why should Germany give Greece money to live better than themselves?).

This turns out like a bad family fight where everybody accuses everybody of being bad and stealing from each other. Meanwhile, the Euro depends on every constituent country being strong, and now it is revealed that some countries are not economically doing well. Furthermore, Portugal and ireland seem to be somewhat in the same boat as Greece is, just a little better off, so people are questioning if they will soon follow. Everyone is very scared because they don't understand who might collapse and what needs to be done to prevent a collapse.