To help make sense of what’s roiling the global markets, here’s an explainer from our sister site Vox.com:
The roots of Greece’s crisis are simple. Before Greece joined the Eurozone, investors treated it as a middle-income country with poor governance — which is to say, a credit risk. After Greece joined the Eurozone, investors thought that Greece was no longer a credit risk — they figured, if push came to shove, other Eurozone members like Germany would bail Greece out. They were wrong.
As this chart, via the American Enterprise Institute’s Desmond Lachman, shows, after Greece joined the Eurozone, investors began lending to Greece at about the same rates as they lend to Germany. Faced with this sudden availability of cheap money, Greece began borrowing like crazy. And then, when it couldn’t pay back its debts, it turned out financial markers were wrong: Germany and other Eurozone nations weren’t willing to simply bail Greece out.
That led the market to panic around 2010, and you can see interest rates on Greek debt spike once again. Those high interest rates make it basically impossible for Greece to borrow, and that makes it impossible for Greece to pay its debts.
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This article originally appeared on Recode.net.
