Greek Crisis

Fabian Belgrave        

GLBAFF 310

Professor Sharif

Due: July 10, 2016

For years, Greece had a decent economy. Greece was one of the world leaders in regards to standard of living for its citizens and had a very high income economy. The truism industry was growing in which helped the economy. In the early 2000’s, Greece’s economy was considered to expand at one of the highest rate in the Euro zone. Unfortunately for Greece, the world’s economy took a turn for the worst. All of the money Greece was borrowing to fund large projects was examined more carefully.  It was discovered that Greece had been over borrowing at staggering levels that even the European Union was shocked. With the global economy’s downfall, Greece was not able to borrow at the lower rates anymore and was unable to pay their debt (Hoffman, CBS News).

        “The Greek debt crisis erupted in 2009, right after the Great Recession: Large government deficits and accumulated debt caused a fiscal crisis that resulted in bailout packages from the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC)” (Santacreu, Economic Synopses). The crisis started in 2009. Since then, the European Commission, the European Central Bank and the IMF (the so-called “troika”) have bailed Greece out twice. In 2010 Greece got 110 billion euros and in return committed to making tough reforms to address the root causes of the crisis. Two years later, Greece was still struggling to pay its debts. So the troika offered a second bailout of 130 billion euros — again, spread over several years, and coupled with austerity measures. Greece became the center of Europe’s debt crisis after Wall Street in 2008 (NY Times). In a nutshell, Greece is broke. The Greek government owes about 325 billion euros which is roughly 350 billion U.S. dollars. This is equivalent to 180% of its total gross domestic product to different creditors such as other European Countries. The International Monetary Fund and various other banks and investors. June 2015, the Greek government failed to make a 1.7 billion euro repayment to the IMF.

        The trouble started in 2002, when 12 European Union nations ditched their national currencies in exchange for the euro. Collectively known as the Eurozone, some of these counties has a stronger economy such as Germany than others like Greece. Due to the shared currency, their economies were tied together.  To keep any one country in the group from jeopardizing the economic strength of the others, they all agreed to meet certain economic criteria. For Greece, this was great. Investors were much more willing to lend the Greece money. The money was even lent on better financial terms. Investors were no longer thinking “I’m lending to Greece,” but rather “I’m lending to a eurozone country, backed up by all the other eurozone countries.”  Then, two bad things happened:  One was the 2008 global financial crisis, which hit Greece’s economy particularly hard. The second was the revelation that the Greek government had, for years, lied to other eurozone countries about its economic indicators. Its 2009 deficit, which, according to eurozone rules, was supposed to be under 3% of its GDP, was actually 16%. The total government debt was also much higher than had been reported. Greece no longer looked so good in the eyes of its international creditors, and loan offers became to dry up.  As Greece’s economy continued to shrink, its bills kept piling up. And, that’s essentially where the country has been since 2009: struggling to pay back the money it borrowed and living under very tight conditions.