Macroeconomic aspect- Interest Rates

An accumulated €360 billion was pumped into the Greek economy to save its dying economy. However, this injection is more likely to be a chronic death drug than a revival remedy. The Greek ten-year government bond rose from 5.6% (Sept 2014) to 10.6% (Jan 2015), just like a time bomb set into motion, destined to explode. 

On the other hand, being a member of the EU (with all the luck), Greece doesn’t have a say on her interest bench mark interest rate. Until today, its interest rate is at an all time low point of 0.05% (a desperate measure to increase spending and investment in the whole EU region indeed.) 

Ideally, cutting interest rates increase investments and spending. GDP will then increase due to increase trades and economic activity. The government can then collect more taxes (aiming at 3% of budget surplus) to slowly repay the debt due 10 years later, Greece back in the EU circle holding hands. 

But fantasy is always beautiful, yet the real world is much crueler. With a sky high unemployment rate of 25.8%, firms and households are very unlikely to utilize this low interest rate. Let’s just hope Greece won’t retrace the steps of third world countries that borrowed from the World Bank (with a debt that can’t be paid up even in 100 years). 

Credits to:
Financial times: The skirmish is over – let the Greek debt battle begin