September 25, 2015

On Monday, September 21, Alexis Tsipras was sworn in as Greek prime minister for the second time in 2015. Economic and political turmoil ended his first brief tenure after just seven months, but the turmoil also brought him right back again a month later.  So what’s going on Greece? Well, let’s go back in time to 2001…

Alex Tsipras, leader of the anti-austerity party Syriza, speaks to supporters after the parliamentary elections in Greece on Jan. 25, 2015. Credit: AP Photo

To join the eurozone in 2001, Greece needed to show the European Union (EU) that its budget deficit was not greater than 3 percent. To meet that target, Greece falsified its books to make its economy look better than it truly was. For example, in 2004, Greece reported a budget deficit of 1.5 percent to the EU. A recent CNN report states that the actual deficit for 2004 was around 8.3 percent.

When the global economic downturn began in 2007, Greece was still fudging it, spending more money than it earned, and borrowing to make up the difference. This put Greece in a worse position than most EU nations to weather the sudden economic storm. And, the recession weakened the international banking sector, preventing Greece from refinancing its large amount of debt. By 2010, Greece could no longer make debt payments. Many nations might have defaulted, but the EU didn’t want this to happen to one of its member nations. So the EU bailed Greece out, providing a loan of 110 billion euros (around $160 billion in 2010 currency).

Greece used the money to make debt payments, but austerity measures (economic belt-tightening) forced on Greece by the EU caused many Greek people to lose their jobs. By 2012, unemployment in Greece had reached 25 percent. While unemployment went up, Greece’s Gross Domestic Product (GDP) went down. GDP is the market value of all goods and services produced in a country during a given period. Economists use GDP to measure a nation’s economic growth. Things were not looking good for Greece’s economy, so the EU loaned the nation another 136 billion euros (around $170 billion in 2012 currency).

Despite the influx of cash to help pay its creditors, austerity measures continued to stifle the Greek economy, and the nation still could not balance its budget. The economic situation for the Greek people spiraled down to the point that it was compared to the Great Depression of the 1930′s.

When Tsipras became prime minister for the first time in January 2015, the Greek debt had climbed to 175 percent the value of its GDP, unemployment was at 30 percent, and household income had dropped by around 35 percent. Tsipras and his SYRIZA party came to power promising to keep Greece in the EU, end austerity, and negotiate a reduction in the level of Greek debt owed to creditors. After a difficult early summer and very unpleasant negotiations with EU officials in Brussels, Tsipras was unable to persuade the EU to end austerity measures or to reduce the amount of debt owed by Greece to EU banks or other creditors. Tsipras did, however, narrowly keep Greece in the EU.

Tsipras resigned his office in August and ordered an election for September. He wanted to see if the people of Greece would re-elect his party to office despite missed campaign promises—and despite a new 86-billion-euro ($95-billion) bailout agreed to the month before, promising further austerity measures. The Greek economy has contracted 29% since 2009 and continues to  shrink. Still, the people gave Tsipras a second chance. Many stated that, even though he was not successful, they felt he had fought hard on issues that were important to ordinary people.

Other Behind the headline articles:

• Anti-Austerity Party Wins Greek Parliamentary Elections (January 26, 2015)
• Greece Gets a Reprieve (February 26, 2015) 
• Greece Closes Banks, as Economic Crisis Escalates (June 29, 2015)
• Greece Votes Oxi! (July 6, 2015)
• EU agrees to bailout terms for Greece (July 13, 2015)
• A Greek Tragedy (July 16, 2015)

February 9, 2015

This coming week will be critical for Greece and its debt crisis. Last week, the European Central Bank (ECB), the central bank for the 19 member countries of the European Union (EU) that have adopted the euro as their currency, refused to consider restructuring the national debt of Greece.

Alexis Tsipras, leader of the anti-austerity party Syriza, was chosen as prime minister of Greece after parliamentary  elections there on Jan. 25, 2015. Credit: AP Photo

The new finance minister of Greece, Yanis Varoufakis, traveled to Berlin last week to discuss his nation’s financial difficulties. The funding that was granted to Greece by the ECB five years ago in a bailout of Greek banks is about to come due, and Greece needs to refinance that sum. Varoufakis was hoping the ECB would continue normal funding of Greece for the next several months, allowing the newly elected government of Greece time to renegotiate a lower rate of debt with its creditors.

The ECB wants Greece to refinance the full amount owed to the ECB for another term. The Greek prime minister, Alexis Tsipras, and his party, Syriza, were elected on a platform of anti-austerity and debt reduction, however, by an electorate thoroughly disenchanted with EU policy on debt. Tsipras believes he must negotiate a reduction in the amount of debt refinanced for the good of the Greek people and his party’s political credibility.

Greek debt has been a thorny issue for the EU for some time. During the boom economic times of the 2000′s until the end of 2007, Greek banks sold more bonds (debt) than was financially responsible. With the economic meltdown and the global Great Recession that began in 2008, weakness in the Greek economy led investors to find such bonds less attractive. Greek banks had far too little capital (money on hand) to weather the change. By 2010, the crisis of confidence in Greek debt was so severe that the nation had no access for financing its debt—that is, no one wanted to buy bonds to finance the government of Greece or its banks.  The EU, through a group known as the “troika”—the ECB, the European Commission, and the International Monetary Fund (IMF)—eventually loaned Greece some 300 billion euros ($340 billion).

With the bailout, the European Union imposed a series of austerity measures on Greece. These measures included cuts to social spending, pensions, and minimum wages, and increases to personal income taxes. Such austerity measures are intended to reduce a nation’s indebtedness. However, during a recession, a government often needs to increase spending to stimulate growth in its economy. In 2010, Greece was entering a recession (which it has only recently left). During this recession, Greek debt increased. In 2009, the ratio of debt to gross domestic product (GDP—the market value of all final goods and services produced in a country during a given period) in Greece was 130 percent. In 2015, the ratio had increased to 170 percent. Greece is somewhat trapped. Government money used to increase jobs—unemployment in Greece is at 27 percent—might lead to economic growth and increased tax revenue, but such spending is barred under the terms of the loans from the EU. Furthermore, as its tax revenues decrease with fewer workers earning lower wages, Greece has less money to pay the debt it has incurred.

Other World Book articles:

• Crisis in the Eurozone (a Special report)
• Eurozone Crisis: No End In Sight (a Special Report)

January 26, 2015

Alexis Tsipras, the leader of the Greek party Syriza, today formed a coalition government and was sworn in as prime minister. Tsipras has vowed to renegotiate the amount of the nation’s debt and to put an end to austerity measures—tax increases and limits on government spending—that were imposed by the International Monetary Fund and the European Central Bank. These austerity measures were placed on the Greek government in return for bailout money from the European Union—240 billion euros ($244 billion).

Alex Tsipras, leader of the anti-austerity party Syriza, speaks to supporters after the parliamentary elections in Greece on Jan. 25, 2015. Credit: AP Photo

In yesterday’s parliamentary elections, Syriza won at least 149 of 300 seats, nearly an outright majority. The left-wing party then formed a coalition government with the right-wing Independent Greeks party to take a majority in parliament.

EU austerity measures have led to a more balanced budget of government spending to revenue for Greece, but at the cost of a contracting economy. The Greek economy has been in recession for the last five years, its unemployment rate has soared to nearly 30 percent, and wages in Greece have fallen sharply. This has left Greece in conundrum. After five years of austerity, its debt has actually increased when considered as a ratio of debt to gross domestic product (GDP—the amount of goods and services in a nation’s economy in a given year). In 2010, the Greek debt was 130 percent of its GDP. It is now close to 170 percent.

After five years of economic pain, Greece is less able to pay its creditors than it was in 2010. Greek voters are hoping Tsipras can lead their nation to better times.