The Economic Crises of Greece

'Hellenic' means relating to Greece. Off late Greece is the country where so called proverbial 'hell has been breaking loose'. We have been hearing various news reports related to Greece and the acute economic crises that it is currently facing. For many of us in India, we haven’t looked at this situation as a major global event except for some of those from stock markets or from impex sector who would be facing some brunt. Hence I thought of writing on this already brewed and further hardening crises.


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Greece incidentally is the first of the ‘developed countries’ of the world to default on an International Monetary Fund's (IMF) loan repayment that happened very recently on 15th June 2015. The three main factors that led to these crises include a) the global economic recession of 2008, b) weak economic policy of Greece and c) sudden loss of investors which happened mainly because of the flawed figures and disguised funds by various Greek central governments over the years. To our surprise there were few major financial institutions which had adviced and helped Greece in these disguised frauds.

Now without being much jargonistic, let us further see some more reasons which has led to the Greek economic crises.

  1. There are many experts who blame the very structure of the European Union of which Greece is a member, for all the financial meltdowns across the entire Europe.

  2. The year 1999 resulted in reduction in trade costs and inversely increasing the overall trade volume with introduction of the Euro as common currency across the European Union. At the same time labour costs too saw an upward spiral. As a result, Greece saw its current account deficit or 'trade deficit' rise significantly.

  3. Two of the Greece's largest earning sectors viz., shipping and tourism, were badly hit by the economic downturn of 2008 making the revenues fall to as low as 15% starting from the year 2009.

  4. The inflow of money started to dry up from the economic crises of 2008. This led to reduction of the foreign financial surplus. This situation actually warranted devaluation of Greece's currency to resume the inflow of capital. But as Greece being member of EU this could not be done and hence Greece suffered significant income (GDP) reduction.

  5. Greek wages started plummeting at nearly 20% from mid-2010 to 2014. This too resulted in significant reduction in income or GDP, resulting in severe recession and coupled with rise in debt to GDP ratio. Overall the Greek GDP faced a steep decline from €242 billion in 2008 to €179 billion in 2014.

  6. Unemployment too has been on the rise and has neared almost 25%, from 10% in the year 2003. However, significant government spending cuts have also helped Greece to return to a primary budget surplus. With this Greece now collects more revenue than it pays out but this is excluding interest. 

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  7. The public debt to GDP ratio in 2014 for Greece was 177% or €317 billion. According to IMF it should not be more than 120% for it to be normal. This ratio was also the third highest in the world after Japan and Zimbabwe. The actual resulting public debt peaked at €356 billion in 2011; it was reduced by a bailout program to €305 billion in 2012 and has risen slightly since then.

  8. In the year 2014 the annual budget deficit (expenses over revenues) for Greece was 3.4% of GDP and it’s per capita GDP fell from a peak of €22,500 in 2007 to €17,000 in 2014, a decline of 24%.

  9. Interest rates on long-term debt rose from around 6% in 2014 to 10% in 2015. Based on debt of €317 billion, the 6% rate represents annual interest payments of roughly €20 billion, nearly 23% of government revenues. The same rate for the US is roughly 8% of revenues while for German bonds it’s less than 1% in the current year.

  10. The unemployment rate too has majorly risen from below 10% in the 2005–2009 periods to around 27% in 2013–2014). It may be strange but it is a fact that 44% of Greeks lived below poverty line in the year 2014.

  11. Another factor is budget compliance which was stated to be in strong need of improvement. It has been found to be 'a lot worse than normal', due to economic control being more lax due to elections being just round the corner.

  12. Another persistent problem Greece has been facing in recent decades is that of tax evasion. Current account imbalances from the period ranging 1997–2014 also show the government only collected less than half of the revenues due, with the remaining tax owings being accepted to be paid by a delayed payment schedule.

  13. One more problem plaguing the system further is corruption and lack of professional governance. According to Transparency International's Corruption Perception Index, Greece, with a score of 36/100, is the most corrupt country in the entire European Union. One of the conditions of the bailout package was the implementation of an anti-corruption strategy. Greek government agreed to combat corruption, and since then the corruption perception level improved to a score of 43/100 in 2014, which was still the lowest in the EU, but now on par with some other 'fringe countries' of the EU. Various reports have indicated the corruption figures to be at 24.3% of GDP.

All these facts and figures are pointer to the fact that Greece has been in definite recession since the year 2009 till today. Greece has tried to find solutions to its compounding problems with help of the 'Troika' or the IMF, European Central Bank and European Commission together, and also some EU member states, mainly including Germany and France. From the year 2010 till today three bailouts totalling to around €250 billion have been issued by the Troika to Greece.


Prime Minister of Greece - Alexis Tsipras
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Recently the fourth quarter of 2014 saw fourth wave of recession replacing an improved economic outlook for Greece. This was related to the unscheduled and snap parliamentary election called by the Greek parliament in December of 2014 and the following formation of the far-left Syriza Party-led government refusing to respect the terms of its current bailout agreement. The rising political uncertainty from the elections, caused the Troika to suspend all scheduled remaining aid to Greece under its current programme until such time that the Greek government either accepted the previously negotiated payment terms or alternately reached a mutually acceptable agreement of some new updated terms with its public creditors. This rift caused a renewed and increasingly growing liquidity crisis (both for the Greek government and Greek financial system), resulting in plummeting stock prices.

After the elections, a further four-month extension for bailout programme was given to Greece for accepting the payment terms attached to its last tranche. The renegotiations with the new Greek government were to be completed before the end of April 2015. This was done so that the review and last financial transfer could be completed before the end of June 2015. Faced by the threat of sovereign default, some final attempts for reaching a renegotiated bailout agreement were made by the Greek government in the first and the second halves of June 2015.

To this the newly elected Prime minister Alexis Tsipras announced a referendum which was held on 5th July 2015 to approve or reject the achieved preliminary negotiation results for the newly updated terms. The Greek government succeeded in securing rejection of the new terms in a referendum from its masses. This caused stock markets worldwide to tumble, as uncertainty loomed about Greece's future, fearing its potential exit from the European Union (event popularly known as 'Grexit'). Following the referendum, Greece's finance minister Yanis Varoufakis stepped down on July 6 and was replaced by Euclid Tsakalotos.

The above analysis is certainly true in most of the aspects. But international politics and economics are weird and complex games. There are multiple undercurrents and 'behind-the-stage' actors who actually call the shots. They are the ones who make and break situations, crises and even nations. They have similar goals and objectives and deep cross-national ties. And we now know who they are.

Now Greece's long-simmering economic crises has finally boiled over into a full-fledged political and financial meltdown and has directly hit the 'common man's common interests'. Banks are closing their businesses; Greek citizens’ have been intermittently unable to withdraw their cash from ATMs, a default on Greece's debts to its fellow European countries looks overwhelmingly likely.

It was just on this Tuesday that EU leaders have agreed to offer Greece a third bailout, after more than 17-hours of overnight talks in Belgium. Post-talks the head of the European Commission said the risk of Greece leaving the EU has been averted. Greek Prime Minister Alexis Tsipras stated that after a ‘tough battle’, Greece had secured debt restructuring and a ‘growth package’. The bailout is conditional on Greece passing agreed reforms by Wednesday, which includes measures to streamline pensions, raise tax revenue and liberalise the labour market. The bailout consists of upto €86 billion of financing for Greece over three years. Though it included an offer to reschedule Greek debt repayments if necessary, there is no provision for the reduction in Greek debt that the Greece had sought. The conditions and repercussions surrounding this package remain to be seen and are yet to be analysed by the experts.


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