Finance and Accounting

Introduction

First of all, what is debt crisis? It’s actually a government that systematically a finance spending through unsustainable levels of borrowing eventually finds itself in a crisis. The crisis is often triggered when economic growth slows or interest rates rise, leading to vicious cycle of larger and larger interest payments. Often, such crises result in default on government debt. The alternative is painful austerity which is higher taxes combined with lower spending. The only sure way to avoid both default and austerity is to keep debt low relative to output.

According to this case, Greece may default on its government debt which will have unexpected consequences due to financial crisis and many predict there will be collateral damage. Government debt takes place here as a main problem. Therefore, we should to know first what is the defining by government debt. It also called as National Debt and Sovereign Debt which is debt issued in credit markets by a national government. Since, countries differ greatly in size and output, economists usually measure government debt as a percentage of a gross domestic product (GDP).Government debt is like personal debt and they might borrow to invest in building a seaport, or sell sovereign bonds to finance an expensive favour for a key voting bloc just before election.

The next question will be who lends money to governments? There are creditors who lend their money to governments can be split into two main categories which is domestic and foreign. Typically, foreigners borrow in a globally accepted “hard” currency most often U.S. dollars and euro. Domestic borrowers typically borrow in the local currency. Among both foreign and domestic there are various types of lender. This includes bank, other financial corporations, and hedge funds, pension funds, and union funds, foreign and municipal and etc. In conclusion, and to summarize this issue, the well-being of a country depends on the economic growth of...