How austerity measures of Greece differ from auterity measures of India in 90s?

Our country took austerity measures in such a way to ensure payment of debt over other things while greece did not do so. And to an extent, economy is like a thermometer one has to cure the disease to bring down the fever

What explains their stance of not paying debt over other things sir?

It requires a full discussion on greece's economy

The first striking thing is that Greece ran a sizable current account deficit that grew from 6.6% of GDP in 2000 to 15.5% of GDP with most of the increase coming in the second half of the decade. A current account deficit basically arises from increases in import costs over export earnings. It is symptomatic of an excess of consumption over income. Greece financed this consumption boom not by drawing down domestic (public and private) savings or gross foreign exchange reserves of the central bank but through the contracting of external debt which swelled from a manageable 73% of GDP in 2000 to close to 160% of GDP by the end of the decade.

If debt was used to finance growth enhancing projects such as investments in health and education, infrastructure, or other investments with a rate of return higher than the cost of the debt, an indebted country could very well remain solvent.

Even as Greece’s debt burden grew ever more onerous, its burgeoning underground economy fueled massive illicit financial flows from the country. Based on well-established economic models, Global Financial Integrity (GFI) estimates that over the past decade ending 2009, Greece lost an estimated US$160 billion through unrecorded transfers through its balance of payments. Interesting, according to study conducted at GFI, there were illicit inflows into Greece which approximately totaled US$96 billion through the misinvoicing of trade transactions, probably as a result of import duty evasion and smuggling.

The shoddy quality of Greek data on balance of payments, external debt, and national accounts mean that the estimates of illicit flows may be understated. In fact, an IMF assessment of Greece’s statistical system in 2002/03 gave high marks for professional integrity, accuracy, and reliability when in fact the Greeks have been fudging their books for a long time.

I sincerely wish our country does not lose integrity like the greek. But you never know till the bubble bursts.

Greek crisis in a nut shell for the laymen :

The endeavour below is to - explain a very complicated circular trading (round tripping algorithm) nonsense that became a crisis - in a simple way..

MARY is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar – she will go broke.

To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.

She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Mary's 'drink now, pay later' marketing strategy and, as a result, increasing numbers of customers flood into Mary's bar.

Soon she has the largest sales volume for any bar in Dublin — all is starting to look rosy.

By providing her customers freedom from immediate payment demands Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.

Consequently, Mary's gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary's borrowing limit.

He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into Drinkbonds and Alkibonds. These securities are then bundled and traded on international security markets.

The new investors don't really understand that the securities being sold to them as 'AAA' secured bonds are really the debts of unemployed alcoholics. They have had a 'rating house' certify they are of good quality.

Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.

One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary's bar. He so informs Mary.

Mary then demands payment from her alcoholic patrons, but, being unemployed alcoholics, they cannot pay back their drinking debts.

Since Mary cannot fulfil her loan obligations she is forced into bankruptcy. So she now is broke.

The bar closes and the 11 employees lose their jobs.

Overnight, Drinkbonds and Alkibonds drop in price by 90%.

The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Mary's bar had granted her generous payment extensions and had invested their firms' pension funds in the various Bond securities. They find they are now faced with having to write-off her bad debt and with losing over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations. Her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro, no-strings attached cash infusion from their cronies in government.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary's bar. How do you think they will vote for the "referendum" ? With a "yes" or a "no" ???

Now, thats economics in 2015.

Why do external financing agencies give loan to a country that is not managing its economy?

when the going is good, all things happen. when it gets bad, you know the difference.

The sum total of my understanding of economics is that if there is addition of money without addition of value, there is bound to be a bubble burst somewhere some time.

Sir if greece quits EU...what will be the impact on other EU member?

EU will lose money - may be have to write off debts

But it may get away with a finger amputation rather than lose a limb

Forecasting external debt default is an extremely complicated task. While economic models often successfully identify countries with external debt crisis after the fact, they remain poor predictors of one. This is one of the issues in international economics.