The Greek economy has always been used as an example to demonstrate the rapidly spiraling state of an economy. In 2015, Greece defaulted on its debt to the International Monetary Fund (IMF) which was worth €1.6 billion. Several people are persistent in blaming Eurozone as a cause for Greece’s downfall. However, another obvious reason can be traced back to the country’s faulty structural system which protected the unscrupulous and allowed defaulters to evade punishment. The inception of Greece’s debt crisis was mainly during the 1980s and early 1990s- before the country joined the European Union. At this point, the unemployment rates were sky-rocketing especially after the collapse of the military dictatorship in the 1970s, the country suffered surging inflation rates, government debts kept increasing, and thus the government’s borrowing costs were also high. Even the expansionary monetary and fiscal policies implemented during this time did not help the economy grow, inflation was still on the rise, and exchange rates were low. The Greek economy was in shambles.
In these sombre times, the only string of hope the country was still holding onto was joining the Eurozone. Hence, in 2001, Greece was accepted into the Eurozone. However, it came with conditions that had to be met. In accordance with the Maastricht Treaty signed in 1992, government deficits were to be limited to 3% of the GDP, inflation to be below 1.5 and the debt-to-GDP ratio was to be less than 60%. Greece’s statistics were nowhere close to the above- mentioned criterion. So, how exactly did they weasel their way into Eurozone? In 2004, the Greek government openly confessed to having doctored significant data to fit the Treaty guidelines. However, Finance Minister George Algoskoufis admitted that the main cause behind fiscal derailment was due to the injudicious ways of the country’s socialist predecessors. However, back in 2001, Greece believed that Eurozone membership would allow the economy to grow, which would later help the country with its exodus of fiscal problems. As the single currency came into being, Greece was seen as a profitable place to invest. With an increase in investments, there was a significant decrease in the interest rates that the Greek Government had to pay.
However, like most Greek stories, this one led to tragedy as well. With low interest rates, the country experienced a sudden increase in spending. While this led to a boost in economic growth for a few years, the growth was nowhere close to being consistent. All this while, the country had been avoiding its deep-seated primary problem- tax evasion, which in turn led to a lack of revenue received by the country. The wealthy, self-employed citizens falsified their income figures- the debt payments were always recorded to be higher than income received. This was a flaw that had not been stitched in time. Moreover, the adoption of the euro led to Greece realising the gap in competition with other countries. Goods and services were relatively cheaper
in Germany compared to Greece. Devaluation was clearly not an option anymore, since, after joining the Eurozone, Greece lost its independent ability to carry out monetary decisions. Greece’s trade balance was thrown off the scales, with an increasing trade account deficit.
Greece reached its all-time low in 2007, with the onset of the global financial crisis. Borrowing costs shot up and Greece was unable to tend to its rising debt. As mentioned in a report by the Council on Foreign Relations, in October 2009, recently elected Prime Minister George Papandreou declared that Greece’s budget deficit will exceed 12 percent of the GDP, almost double of what was estimated. The figure was later revised to 15.4%. In 2010, US financial rating agencies labeled Greek bonds as “junk”, thus, once again, Greece saw a rapid spike in borrowing costs. Coupled with the ongoing recession and high borrowing costs, Greece faced a liquidity crunch. When Greece had finally walked the end of the plank, their last resort was to seek bailout funding. However, this came with extremely stringent conditions. These conditions mainly stressed on Greek budget reforms- the country was required to increase taxes and cut their spending, which came in the form of wage cuts in the public sector, increase in retirement age, and a spike in fuel prices. Over the following years, this measure became ever more grating; with the public sector receiving further pay cuts, Greece’s minimum wages were cut, pension payouts reduced and even defence spending was limited.
These austerity measures acted much like Zeus’ eagle feeding on Greece’s regenerating economy every day, just to keep it from regaining economic stability. Greece quickly found itself amidst a web of recession. International Labour Organizations mentions that unemployment rose to 25.4% in 2012 and 28% in the fall of 2013. These measures created a humanitarian crisis with an increase in homelessness, a spike in suicide cases, and plummeting public health systems. However, this bailout funding had little to no advantage for the Greek citizens. The money had mostly been used to repay Greece’s debt holders, most of them being banks in other European countries.
The vox populi at sometime around 2012-13 was that the only way Greece could come out of its debt crisis was if they withdrew from the Eurozone and returned to having “Drachma” as their nation’s currency. Hence, the popular term “Grexit” came into being. The only way to regain overseas investment was to reintroduce the devalued Greek Drachma. It was also seen as a way to increase overseas travel and tourism, since now, touring in Greece and exchanging drachmas would be cheaper than exchanging the expensive euro. By doing this, the economy would still suffer but at least recover with limited assistance from the IMF. However, another school of thought believed that shifting to Drachmas would result in a rapid fall in living standards, leading to more civil unrest. People also believed that by following through with Grexit, Greece might partner with other foreign powers, which would not rest well with existing Eurozone members. This way, there was a potential threat of Greece tarnishing its relations with other European countries. However, as of 2020, Greece remains in the Eurozone with the help of bailout loans. Grexit remains as a viable and possible option for the future.
Overcoming the Greek economic crisis might just rival walking through Daedalus’ labyrinth. However, as of August 2018, the Greek government announced the country’s successful egress from the last of its bailout programs. They can finally begin selling 10-year bonds, for the first time in nine years. Greece is known to rise from the ashes, much like how their celebrated mythologies suggest. However, there are still questions that one can’t help but be curious about. Will Greece be able to maintain its stable economic systems? Or will they fall back into the mistakes that their predecessors made? Whatever the question is, Greece’s resilience is still a much-appreciated attribute. It is no doubt that Greece- the cradle of Western Civilization can overcome all austerities if they walk the right path.