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.