The Greek Economic Crisis

Since the year 2000, when it entered the Eurozone, Greece has not been able to keep its checkbook balanced. Before the 2008 worldwide economic crisis, Greece had been misleading the European Union, the European Central Bank and the International Monetary Fund about its debt status. But in 2010, two years after the beginning of the worldwide economic crisis, the embezzlement was impossible to hide.

Greece’s problems began with the Wall Street Crisis of 2007-2008. Since entering the Eurozone, Greece turned to private banking for loans and registered them under a different figure through an instrument created by these banks in the balances they presented to the European Central Bank. But with the Wall Street Crisis, the debt caught up with Greece and it was unveiled that for years they were spending way more than what they were perceiving as income.

After the lack of accuracy in their balances was discovered and the IMF, the European Central Bank and the European Union intervened, the Greek Ministry of Finance issued through the European Commission a detailed document explaining the measures and the presumptive economic forecast for the following years. It based the policies regarding the debt in five pillars: “1. Restore credibility in fiscal statistics by making the National Statistics Service an independent legal entity and phasing in, during the first quarter of 2010, all the necessary checks and balances that will improve the accuracy and reporting of fiscal statistics. 2. Improve transparency in fiscal management, by changing the process of budgeting, monitoring and evaluating its implementation, and moving towards a programme-based budget. 3.Reform the tax system in order to make it simple, stable, transparent and fair, and to effectively fight tax evasion by improving auditing activities and exchanging of information between auditing agencies. 4. Achieve control of primary expenditures by containing personnel and other current outlays and reallocating expenditures more effectively. 5. Implement the necessary structural reforms to enhance competitiveness and the efficient functioning of the economy” (Ministry of Finance, 2010, pg. 15).

The biggest issue here is not only the debt Greece has but also the fact that it transacts in Euro, a currency shared with 19 countries. Since it’s a common market with a unified currency, the entire zone’s Member States are affected by the crisis since it generates instability in the currency and risks the economies of the Eurozone countries. But leaving the Eurozone will have two problems for Greece: first, it would have to invest in the restoration and remission of the drachma and deal with the fact that it would have no credibility making it very weak against other currencies; secondly, the debt still has to be paid in Euros. Furthermore, “European policymakers struggle to achieve two main goals: safeguarding the idea that the euro is irreversible and stable; and protecting their own banks and taxpayer money. To achieve these goals, the IMF, European Commission and European Central Bank have lent Greece huge sums to keep it financially afloat and in the euro zone, while demanding austerity and deep reforms in return. But they have been unwilling to either let Greece default or to grant substantial debt relief” (Walter, 2016).

And it’s because the possibility of a default, and the pressures from the EU⎯especially Germany⎯ and IMF on its consequences that they make Greece an offer on austerity measures in exchange of debt relief. Prime Minister Alexis Tsipras called for a referendum for July 2015, “Grexit”, as it was known, to let the people decide between accepting the austerity measures or rejecting them. Paul Krugman, among others, considered that both kicking Greece out of the Eurozone and forcing the measures to them was “a grotesque betrayal of everything the European project was supposed to stand for” (Krugman, 2015). He furthermore added: “what we’ve learned these past couple of weeks is that being a member of the Eurozone means that the creditors can destroy your economy if you step out of line. This has no bearing at all on the underlying economics of austerity. It’s as true as ever that imposing harsh austerity without debt relief is a doomed policy no matter how willing the country is to accept suffering. And this in turn means that even a complete Greek capitulation would be a dead end” (Krugman, 2015). Tsipras campaigned in favor of voting against and the Greeks complied. The result of the referendum was 62% in favor of rejecting the measures and the remaining 39% in favor of adopting them (Wearden & Kollewe, 2015). Despite the outcome of the referendum, only days after it the central government accepted measures even more austere, especially regarding pensions and social services, than the ones proposed in exchange for bailouts. Tsipras faced huge backlash from Syriza, his party, and resigned and called for elections. He ran again and won.

Written by: Gabriela Benazar Acosta

However, one of the problems besides the nature of the measures is that “The bailout money mainly goes toward paying off Greece’s international loans, rather than making its way into the economy. And the government still has a staggering debt load that it cannot begin to pay down unless a recovery takes hold” (The New York Times, 2016).