It’s 1999, the Greek government is in a bit of a pickle. The European Union has just launched a fancy new currency: the euro, they’ll be shared by its members, but even though Greece is part of the EU and left off the invite.
You see despite massive tax evasion problems, the Greek government has been spending to boost social benefits and wages which has caused their debt-to-gdp to rise well above the 60% required to adopt the currency. So now they must decide between cutting back spending or missing out on the eurozone party.
Unless of course there’s a third option, you see Goldman Sachs an American investment bank comes along with an idea, a way to meet the currency adoption criteria by masking the government’s debt load through currency swaps, involves a bit of line but this way the country can avoid radical reforms and reap the benefits of the euro a win-win. So Greece gives us a shot using the sight of hand to adopt the currency in 2001, and sure enough the Sun pays off.
The currency brings with it more trade and since the Euro allows Greece to pay back off the financial strength of its fellow eurozone members. The government aims access to better financing, enough to even bring the Olympics home for 2004. Sure debt to GDP continues to rise above 110 percent and things are a little precarious, but the economy is growing there’s plenty of EU money funding the budget deficit, and so long as things keep rolling everything will be…!
That’s not good!
Looks like a real estate crisis in the US has triggered a global recession, it’s hitting Greece like a train.
In 2008
GDP is falling as tourism and shipping, so now with the Athens Stock Exchange plummeting 65% , worse yet borrowing costs are increasing, and that shared currency we fought so hard for. Well it’s preventing Greece from stabilizing through monetary policy, and just in case things didn’t look bad enough. Surprise!
In 2009,
It’s revealed that the government has been cooking the books, and its budget deficit is not 6.7% but double that. whoops! I mean more than double the original estimate.
Borrowing costs skyrocket as the entire country’s credibility is smashed, like a plate on the floor OPA.
On April 27, 2010,
With a debt to GDP of 127 % the country’s credit rating is dropped to junk. Clownin Greece towards default as begins to drown in its pile of public debt, but look on the horizon visit a bird, is it a plane? no it’s a buttload of money. The troika a group consisting of two EU entities in the International Monetary Fund has come to bail Greece out, in a bid to save the EU from the ramifications of a Greek default. Here’s the plan! lend agrees 110 billion euros to avoid default, use the bailout money to pay off expensive creditors, get the government to commit to higher taxes and lower spending to bring the country back into a surplus and wait for this recession to blow over.
On May 2, 2010,
The troika tosses Greece a lifeline and damn. The bailout doesn’t quite fix a problem. In fact the austerity measures have put further pressure on GDP and brought debt to GDP up to one hundred and seventy two percent by 2011, with creditors quickly draining the bailout funds.
This is bad! and the troika realized that more drastic measures are required. So they devised a new plan. Give Greece another 130 billion euros negotiated with creditors to cut the country’s IOU by 53.5% get the government to commit to further austerity measures to bring the country back into a surplus and wait for this depression to blow over.
On February 21, 2012,
The troika prepares the largest sovereign debt restructuring in history. Tosses Greece’s second lifeline and success! the program grabs a hold, and after 2 years of further tax reforms, layoffs and wage cuts government reports a structural surplus. But, wait Greece is starting to fight back you see the Turkish bail of terms they’re hoping the government get a handle on its debt are causing unrest at home. With Greeks bearing the burden of falling wages, rising taxes and unemployment above 25%.
Election 2015
When a snap election occurs in 2015, the people break over 40 years of two-party rule, and elect a new anti-austerity party to office in a bid for change. The new Prime Minister promises to boost spending and throw down the gauntlet to Detroit to renegotiate terms. Raising tensions between government and the troika until the country’s lifelines snaps and all hell breaks loose! creditors flee crease once again, and now quiddity crisis emerges with fear gripping the country amid concerns of Grexit. Greece’s departure from the EU negotiations with the troika fell through as even its members clash.
On June 30, 2015,
With the government unable to secure any further debt relief, Greece defaults! missing a 1.6 billion euro debt payment to the IMF, the first of Developed country to ever do so.
The foundation of Greece’s economy begins to crack, as the government shuts down its stock exchange and banking system, Greeks continue to fight against a new bailout proposed by the EU, but at this point with the country and financial purgatory, greggson inching closer in no more leverage for negotiation.
On July 16,
A very desperate government throws in the towel. Grabbing a hold of the EU’s third lifeline and accepting an 86 billion euro bailout in August, and so with the fight to boost spending meeting a dramatic end, the Greek people prepare once again for a round of cuts, reforms and hard times ahead.
All in the economy would shrink 25% as a result of the crisis, and while Greece has since finished its bailout programme, the country to this day maintains a debt to GDP of 181%, and Greek people continue to suffer, with one in three Greeks at risk of living in poverty.
It goes to show the terrible consequences of fiscal mismanagement, and as Greece continues down its road to recovery let us not forget the valuable and devastating case study it provided.
