GREEK DEBT CRISISCountry risk refers to the risk of investing in a country which is dependent on the changes on business environment which may lead to reduction in the value of assets in a particular country; it may also reduce the operating profits of companies or investors in general. Country risk analysis assesses the potential risks and rewards associated with making investments and doing business in a country. Some of the factors that may increase the riskiness of a country may include currency controls, devaluation changes and political instability indicated by mass riots, civil war and other effects of government’s instability. The underdeveloped countries face various financial situations that are out of their capability.
These situations call demanded that these countries’ finance divisions to make arrangements meant to obtain the money that they so desperately need. The most common approach that they apply is borrowing from the international financial institutions operating in the countries. The loans agreed upon by the two parties involved, and they have to fulfill the requirements that they place. The countries more often than not fail in making timely payments.
This makes the market players to go into frenzy since the stability of the international finance institutions is in a status of jeopardy. This paper attempts to look at the occurrence of these situations which is the country conflict in relation to Greece. In addition, the paper looks at the international lending and the essential dilemmas caused by international lending to sovereign debtors. The paper also attempts to correlate the debt crisis situation in Greece and theory of country risk while drawing practical examples from Greece and other countries.
Identifying the genesis of the debt crisis in Greece is paramount to discussing the country risk posed to the potential and already existing investors in the country. The country is the poorest among the one that make up the euro zone and this poses a question on how the country gained access to the Euro zone. This was simply by not indicating the real debt situation in the country. Misrepresentation of information concerning the debt situation seemed like the right thing to do at that point in time as that was when the country had an interest of joining the trading block (Wagner, 2012).
Evaluate the risk of investing in GreeceThe Greek Economy has in the recent past been faced with great debt crisis, It’s among the European sovereign-debt crises (Haidar, 2012). Recent research (Higgins, Mathew 2011 and George Matlock 2010) shows that in the late 2009, investors developed much fear of sovereign debt crisis with regard to Greece’s ability to meet its debt obligations. This was due to the increased government debt levels. As a result of this reluctance by investors to invest in the country, it led to a crisis of confidence indicated by a widening of bond yield spreads and cost of risk insurance on credit defaults swaps as compared to other countries in the Euro zone especially Germany (Financial mirror. com and Financial Times, 2010)