The End of an Era: The Greek Bailout Crisis
In August 2018 one of the worst financial crises of the modern era - the bailout of the Greek economy - came to an end. For over eight years the Eurozone and other entities constantly loaned Greece money in order to keep its economy afloat, as well as to prevent Greek banks from defaulting. It all began in 2010, when Greece’s budget deficit was almost 13% of their GDP, over four times the EU’s limit. They had promised to lower it to 3% within two years, but later that year they announced they may default on their debt. This caused the EU and the International Monetary Fund to loan 240 billion Euros in emergency funds, starting the Greek Debt Crisis.
Greek Debt continued to rise with bailouts from other organizations like the European Financial Stability Facility. By 2012, Greece’s debt rose to 175% of their annual GDP, which is almost 3 times higher than the Eurozone’s limit of 60%. This debt level of 175% was reached even after a 50% debt write off the year before. At this point Greece had austerity measures forced upon it by its lenders in an attempt to stabilize the crisis. However, these measures lead to increasing unemployment until in 2014 when it reached 28%, a new record high. Riding a popular wave of hatred for the new austerity measures, the leftist Party of Syriza was voted into power with Prime Minister Alexis Tsipras.
In 2014, despite the record high unemployment rate, the Greek economy did see some growth. Even though it was under 1%, it was still growth. However, when Syriza rose to power any kind of progress towards political stability in the recent years was throw out the window. In 2015, the Greek public voted on a referendum against the austerity measures imposed on them by the EU. Tsipras’ plan with this referendum was to use it as leverage in negotiations for more debt write offs from their lenders. Chaos ensued: Greece was unable to make their scheduled 1.6 billion euros payment. With the missed payment, the instability caused mass withdrawals from banks. Banks were forced to close and a withdrawal limit of 60 euros per day per person had to be implemented. The European Central Bank saved the local Greek Banks by giving them an emergency injection of funds. Subsequently, the government was forced to implement the austerity measures against the referendum to receive emergency funds to stabilize the government.
Finally, in 2016 Greece’s economy started growing again after only shrinking by a factor of 0.2 in 2015. However, banks were still losing money. The banks decided to bet on the economy as it was slowly improving at the time. Eventually, the banks were able to stabilize after betting correctly. Over the course of 2016 and 2017 the situation continued to improve as the Greek government implemented more austerity measures and received more funds for doing so. In July of 2017 Greece as a country was able to issue bonds for the first time since 2014. The final round of austerity measures came in January of 2018, which Greece received loans for in order to protect them spiraling out of stability again. In August of 2018 the bailout program was officially ended, and Greece’s economy was taken off life support. Currently, they are projected to pay off all their current debt by 2060.
With the crisis over for Greece, what comes next for the beleaguered nation? Obviously, their main focus should be to fix their economy which was set back about 30 years by this crisis. But while Greece is on the slow path to recovery there are still other issues they need to fix. The most glaring issues seem to be tax evasion and the black market. Greece is simply not doing a good enough job in collecting the necessary funds to run a functioning government. Currently the black market makes up about 21.5% of their GDP. That’s an incredible amount of lost tax money that would be extremely useful to them. The next few years will be extremely testing for Greece with Brexit. Brexit could allow Greece a fast track to recovery with the potential for debt restructuring and new lucrative trade deals across Europe. However, Greece first has to ensure their economy is protected for the present and near future before pursuing any radical economic ventures.
Sources:
https://www.bbc.com/news/world-europe-17373216
https://www.thebalance.com/what-is-the-greece-debt-crisis-3305525
https://www.nytimes.com/2018/08/19/business/greece-bailout-financial-crisis.html
