What Greek Debt Can Teach You About Personal Debt

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by: Debt Advice Group
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Date: Wed, 28 Sep 2011 Time: 1:08 AM
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For those experiencing personal debt problems in the UK, the economic crisis in Greece may seem a distant problem, and perhaps not one that directly affects them on an individual basis. But the reasons for the Greek debt crisis and the measures being taken to resolve it contain salutary lessons for us in the UK, and they are a timely reminder of how dependent we are on our European neighbours.

The reason why Greece finds itself in such economic turmoil may strike a chord with many of us. Greece has been ‘living beyond its means' over the past decade and rising levels of debt have placed an enormous strain on their economy. Bring this down to the micro level and it mirrors how many people in the UK have been seduced by easy credit - credit that now has a considerable price to pay.

More Going Out Than Coming In

Over the past 10 years the Greek government has borrowed heavily and greatly increased public spending, with wages for the public sector almost doubling. Tax evasion has contributed to the problem, reducing tax income and leaving the country vulnerable when the global financial downturn occurred.

Anyone who has sought debt help knows that when you're paying out more than you've got coming in, it won't be long before you come unstuck. In the case of Greece, last year their public spending exceeded tax revenues by 13.6% of GDP, the highest in Europe and four times the limit of Eurozone rules.

All In This Together

One thing we can be sure of is that Greece's debt problems have an impact on the UK. Deputy Prime Minister Nick Clegg has said he is ‘incredibly worried' about the crisis and stated: "This has a direct impact on British jobs and the livelihood of people in this country."

According to the International Monetary Fund, Greece's huge 350bn Euros of debt is ‘sustainable but on a knife edge', with the fear being that Greece will default on the IMF's110bn Euro (£96bn) debt help package.

The worry for the taxpayer in other Eurozone countries is that the Greek problem could spread. If the Greek economy collapses then Britain could be hit hard, with losses that some say could be up to £366bn. The potential damage to banks and other institutions in the City would be equal to 24% of our national output or £14,640 for every family in the UK.

The Domino Effect

If Greece defaults on its debts the crisis this could also cause a domino effect that would topple the weaker economies of Ireland, Italy, Portugal and Spain, which including Greece make up the economically vulnerable nations known as the ‘PIIGS'.

Managing debt requires action and the first act, and one that that will sound familiar to those who have ever sought debt advice, is to cut spending. The IMF is clear that Greece must demonstrate its austerity drive in order to get any more help and in order to reassure them, Greek prime Minister George Papandreou has outlined a severe programme of austerity measures including pay cuts, tax increases, privatisations and public sector redundancies. It's a radical plan that everyone in Europe, including the UK, will be hoping succeeds, and again, one that mirrors the changes that many individuals in the UK are making to ensure that they're managing their own debts. Greece has asked for debt advice from the EU. For UK borrowers struggling to balance their own accounts, it may be time to take a leaf out of Greece's book and seek debt help themselves.

About the Author

Declan Murray
Senior Debt Advisor

Declan has worked with the Debt Advice Group since it was founded. As a senior debt advisor Declan works alongside specialist Insolvency Practitioners and advises customers on all aspects of their debt including bailiffs queries and IVAs from first call right through to closures. Declan has been an active forum specialist since 2009 on IVA.co.uk - a popular, award winning forum providing IVA support.