February 26, 2015

The crisis surrounding Greek debt eased this week. Yesterday, German Chancellor Angela Merkel held a test ballot among MP’s (members of parliament) in her party and in coalition with her party to see if the proposed four-month extension on financial aid to Greece would pass in the German parliament. Because Germany is a financial powerhouse in the European Union (EU), its approval is necessary for the planned aid to go forward. Merkel’s center-right coalition, made up of the Christian Democratic Union (CDU) and Christian Social Union in Bavaria (CSU), voted in favor of the aid package to Greece by 311 to 22.

The Greek economy is important to more than just Greece and its citizens. Greece is a member of the European Union and belongs to the eurozone—that is, it is one of 19 EU countries that use the euro as their currency. Greece cannot claim it is bankrupt and renege on its debt agreements while it remains in the EU. The EU has a central bank, the ECB, that is expected to prevent any member nation from defaulting on its obligations. To default, Greece would have to leave the European Union and the eurozone. The effect on the global economy of such a move as Greece’s default on its creditors and its return to its old currency, the drachma, would be worrying enough. But were Greece to leave the EU, it would call the entire enterprise of European unification and a shared currency into question.

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

In order to obtain an agreement for financing, the new government of Greece, swept into power on anti-austerity sentiment in a nation that has spent the last five years in recession, agreed to certain conditions. Some of the conditions reflect the deep divisions between Germany, the creditor nation, and Greece, the debtor nation. Germany has loaned billions of euros to Greece via the EU over the past five years, and it wants Greece to keep its agreement to pay that money back. Greece has spent five years living under the austerity plan of the European Union; it has had a shrinking economy for six years; and it currently has an unemployment rate of nearly 26 percent. When the government of Greece, for example, pledges to increase housing and medical care for the poor without increasing public spending, it seems as if those two goals will be difficult to reconcile. Some experts feel the promises Greece made this week to obtain a four-month loan extension will be impossible to keep.

Other World Book articles:

• Crisis in the Eurozone (2010-a Special report)
• Greece (2012-a Back in Time article)

June 20, 2012

Antonis Samaras, the leader of Greece’s conservative New Democracy Party, was sworn in as prime minister, heading a three-party coalition that is committed to upholding Greece’s bailout commitments. His New Democracy party joined forces with the leftist PASOK party and the smaller Democratic Left party. The formation of the new coalition government ended–at least for now–a protracted political crisis that threatened to plunge Europe deeper into financial chaos. New Democracy won recent parliamentary elections with 29.67 percent of the vote. The leftist Syriza party, which came in second, ran on its opposition to the terms of a bailout that kept Greece from defaulting on its national debt earlier this year. European officials had warned that failing to live up to the terms of the agreement could result in Greece’s expulsion from the eurozone.

In March, the European Union and International Monetary Fund loaned Greece 130 billion euros (172 billion dollars), but the conditions were severe. The agreed upon program of “austerity” was designed to drastically lower Greece’s national debt. This was to be accomplished by slashing public sector jobs, the minimum wage, and old-age pensions; it also called for Greece to privatize–that is, to sell off–such publicly owned assets as transportation and utility companies. According to many economists, the austerity program has, in fact, plunged Greece’s economy deeper into recession–pushing unemployment higher and depressing tax revenues. These economists also argue that austerity has dragged Greece even deeper into debt.

The Parthenon crowns Athens, the capital of Greece. (© Dagli Orti, The Art Archive)

While not rejecting the terms of the bailout, Samaras’s New Democracy party seeks to change it. However, both German Chancellor Angela Merkel and the German foreign minister have stated that the substance of the bailout agreement is “not negotiable,” though the “timeframe could be discussed.” Speaking in Athens, Greek political and economic analyst Theodore Couloumbis noted, “The crisis has been postponed, not necessarily averted. For this [latest] government to last it has to show results. You can’t continue with 50 percent youth unemployment and a fifth straight year of recession.”

Additional World Book articles:

• Bond
• Euro
• Economics 2010 (a Back in Time article)
• Economics 2011 (a Back in Time article)
• Greece 2011 (a Back in Time article)
• Crisis in the Eurozone (a special report)

May 15, 2012

Political parties in Greece were unable to come to terms today to form a coalition government, forcing yet another round of parliamentary elections. President Karolos Papoulias is scheduled to meet with all political leaders to establish an interim government until the elections, which are expected to take place in mid-June.

Greece is in a fifth year of recession, and its economy contracted by fully 6.2 percent in the first quarter of this year. With the rate of unemployment at a record 22 percent, a majority of Greeks voted on May 6 for either far left wing or right wing parties that oppose austerity measures demanded by the European Union (EU) and International Monetary Fund. The measures were part of an agreement granting Greece two bailouts to avoid default on its national debt. European leaders, specifically German Chancellor Angela Merkel, have stated that they will cut off funding for Greece if it rejects that bailout agreement.

Seventeen of the 27 member nations of the European Union (EU) are in the eurozone. They are Austria, Belgium, the Republic of Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. (World Book map)

Economists note that without EU funding, Greece would effectively fall into bankruptcy, making it all but certain that it would exit the European single currency. Seventeen countries, known as the eurozone, adopted the single currency. The prospect of a debt-crippled Greece forced out of the European single currency depressed prices of stocks on European markets as well as the value of the euro against the U.S. dollar.

Market analysts fear that a possible departure from the euro will set off a new round of financial instability for Europe and the outside world. The economies of at least a dozen European countries are already in recession.

Additional World Book articles:

• Crisis in the Eurozone (a special report)
• Banks 2011 (a Back in Time article)
• Economics 2011 (a Back in Time article)

Dec. 9, 2011

European Union (EU) leaders, meeting in Brussels, Belgium, have agreed to a pact that requires member nations to enforce stricter fiscal (public finance) discipline in their national budgets. In the future, financial officials of member nations will submit tax and spending plans to EU officials for their approval before showing budgets to their government. The accord includes penalties for breaking deficit limits. (A deficit is the amount by which a sum of money falls short.)  The actions were taken in response to the current eurozone debt crisis. (The eurozone consists of the 17 member countries of the European Union that have adopted the euro as their single currency.) Investors worldwide fear that Greece, Ireland, Italy, Portugal, and Spain could default (fail to pay when due) on their national debts–that is, their government bonds. A default by Italy, Europe’s third-largest economy, could throw economies around the world into recession if not depression.

The EU leaders also agreed to provide an additional $200 billion ($268 billion) to the International Monetary Fund to shore up the European bailout fund to cover Italy and Spain through the current debt crisis. A permanent $500-billion ($670-billion) European Stability Mechanism will be put into effect by July 2012, which will run concurrently with the existing $440-billion ($590-billion) European Financial Stability Facility. The new rules on spending and budgets will not be implemented by an EU treaty but by an intergovernmental treaty, which will likely be more easily ratified (approved) by individual countries.

German Chancellor Angela Merkel, along with French President Nicholas Sarkozy, served as architects of the plan to impose fiscal discipline on eurozone countries. © Sean Gallup, Getty Images

Efforts to reach unanimity (complete agreement) among the 27 EU member nations, as desired by German Chancellor Angela Merkel, failed. British Prime Minister David Cameron insisted that the United Kingdom be exempted from certain financial regulations. Analysts see his objections chiefly as a means to protect “the city of London,” that is, Britain’s highly important banking and financial services sector. International affairs experts noted that while Europe is taking a big step towards closer integration, the United Kingdom appears to be isolating itself, limiting its influence on the future course of events.

Additional World Book articles

• Europe
• Money
• Back in Time (Europe 1999 – euro launched)