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What happens when a country defaults?

Countries with high levels of public debt can sometime default on paying back their loans. This is seen as very bad news for their economies. A country with very high public debt is Greece (approximately 177% of GDP), this debt is largely ‘owned’ (lent by) foreign organisations such as the World Bank and the ECB. In 2015 Greece had to default on a $1.7 billion payment to the International Monetary Fund. This meant it could not get further financial assistance until the loan was repaid or restructured and it sent warning signs to investors in the Greek economy that they might not get their money back.

A default such Greece’s can be seen as a Catch 22. The economy has suffered severely, yet cannot get essential investment because it is seen as at risk of default but it cannot repair its finances without economic growth which is very unlikely without outside investment. The ECB, based in Frankfurt, tried to impose a policy of austerity on Greece to avoid defaults. This has had a very negative effect on the Greek economy and on Greek society with long-lasting repercussions for potential prosperity.

An anti-austerity demonstration outside the Greek Parliament in Athens

Other notable country defaults in recent years include Argentina which suffered a serious default in 2001, leading to restrictions on the withdrawals Argentinians could make from their own accounts.