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)

October 30, 2013

Spain’s gross domestic product (GDP) grew by 0.1 percent in the three-month period from July through September, the Spanish National Statistics Institute reported today. The third-quarter economic growth ended a two-year recession. Spain’s economy had contracted for the previous nine quarters. Spain—with Greece, Ireland, Italy, and Portugal—was one of the countries hit worst by the recent debt crisis in the eurozone. (The eurozone consists of the 17 European Union member nations that adopted a single currency, the euro). According to the Institute report, Spain’s third quarter economic growth was driven by an increase in exports and a boost to tourism from vacationers avoiding the ongoing upheavals in North Africa and the Middle East.

The euro has replaced the individual currencies of the eurozone—made up of 17 member nations of the European Union. The eurozone has finally begun to climb out of a lengthy recession (European Central Bank).

Spain’s economy was hard hit when a decade-long property bubble burst with the worldwide crash of 2008. The country’s banks, sitting on hundreds of billions of euros in bad property loans, only survived with government bailouts. Thousands of businesses went under, and the country’s rate of unemployment soared to 26 percent. The rate of unemployment among people under the age of 25 spiked to more than 50 percent. High unemployment combined with a government austerity program consisting of spending cuts and tax hikes triggered huge public protests.

Many economists now suggest that the eurozone debt crisis appears to be easing. They point out that Ireland emerged from recession in the second quarter of 2013, helped by a rebound in exports and a rise in consumer spending. Portugal pulled out of two and a half years of deep recession with economic growth of 1.1 percent in the second quarter of this year, surpassing expectations. Economists believe that Greece’s record six-year recession is bottoming out, with the economy set to shrink this year by significantly less than analysts had forecast in June. Italy remains in recession, but the Economics Ministry reported yesterday that economic indicators suggest that a predicted recovery next year will likely be stronger than expected.

Additional World Book articles:

• Crisis in the Eurozone (a special report)
• Economics Crisis: The Banking Meltdown (a special report)
• European Union: The Euro (a special report)
• Eurozone Crisis: No End in Sight (a special report)

September 24, 2013

German Chancellor Angela Merkel triumphed in Germany’s parliamentary elections on September 22. Her Christian Democratic Union and its sister party, the Christian Social Union, took 41.5 percent of the vote, which political analysts describe as a personal victory for Merkel. German newspaper columnist Heribert Prantl wrote, “Her election victory was not just a victory, but a triumph.” He lamented the lack of a feminine form of “triumphator” in German, declaring that Merkel deserved the accolade. The final results gave Merkel’s coalition 311 seats, just 5 seats short of an absolute majority.

Angela Merkel, Germany's first woman chancellor, won a resounding victory in the 2013 federal elections. (© Sean Gallup, Getty Images)

Her party’s campaign concentrated almost solely on Merkel’s solid leadership during the eurozone credit crisis. International affairs experts describe Merkel as Europe’s one indispensable leader and give her credit for holding the eurozone together in times of economic turmoil. She is only the third German chancellor–after Konrad Adenauer and Helmut Kohl–to be elected to a third term.

Additional World Book articles:

• Germany 2012 (a Back in Time article)
• European Union: The Euro (a special report)
• Crisis in the Eurozone (a special report)
• Eurozone Crisis: No End in Sight (a special report)

August 14, 2013

The longest recession to hit the eurozone has officially ended, economists at Eurostat, the statistical office for the European Union (EU), announced today. Economists generally define a recession as the contraction of a nation’s gross domestic product for two consecutive quarters. Eurostat officials said the eurozone’s recession, which began in the fourth quarter of 2011, ended during the second quarter of 2013, as the group’s collective economic output grew by a total of 0.3 percent. The recession was the longest in continental Europe in the past 40 years. The eurozone, which was founded in 1999, consists of 17 EU countries that use the euro as a common currency.

Economists cautioned, however, that economic growth across the eurozone remained uneven. The bloc emerged from the recession mainly because of growth in France and Germany, whose economic output increased by 0.5 and 0.7 percent, respectively. However, the economies of some eurozone countries, including Italy, the Netherlands, and Spain, continued to contract during the second quarter, though at a slower rate. In Greece, the rate of economic contraction slowed slightly. Portugal, one of the bloc’s weakest economies, grew by a surprising 1.1 percent.

The euro has replaced the individual currencies of 17 member nations of the European Union. (European Central Bank)

Officials noted that unemployment across the eurozone remains high, exceeding 25 percent in some countries. They also warned that despite the the good news, Europe’s economy remains deeply troubled. “I hope there will be no premature, self-congratulatory statements stating ‘the crisis is over,’” the EU’s top monetary official wrote in a blog.

Additional World Book articles:

• Crisis in the Eurozone (a Special Report)
• Economics, World 2010 (a Back in Time article)
• Economics, World 2011 (a Back in Time article)

March 20, 2013

Yesterday, the parliament of Cyprus rejected a one-time tax on bank deposits, proposed as part of €10-billion ($13-billion) European Union (EU)-International Monetary Fund bailout package. The vote was 36 against the proposal, with 19 abstentions. No member of parliament voted in favor of the bill. The one-time tax included a levy on bank deposits smaller than €100,000 ($129,500). It was to have raised €5.8 billion ($7.5 billion), which would have boosted the EU bailout fund to nearly €16 billion ($20.5 billion). EU finance ministers have warned that Cyprus’s two largest banks will collapse without the bailout.

Cyprian banks are holding huge numbers of Greek government bonds, which have lost about 50 percent of their value as part of Greece’s bailout agreements with the EU. The banks have also made loans to both the Greek and Cyprian private sectors, which are likely to go unpaid with both countries’ economies in deep recession. European banking analysts estimate that Cyprus’s two largest banks are undercapitalized by as much as 60 percent of total deposits. That is, the banks do not have enough money to fully pay all their depositors.

The euro has replaced the individual currencies of 17 member nations of the European Union. (European Central Bank)

European officials fear that if Cyprus does not find the funds to prop up the banks, the country itself will be at risk of economic collapse. They note that there is a clear risk that Cyprus will pull out of the eurozone, which would likely trigger a chaotic situation for the remaining 16 countries that use the euro.

Additional World Book articles:

• Crisis in the Eurozone (a Special Report)
• Economics, World 2010 (a Back in Time article)
• Economics, World 2011 (a Back in Time article)

March 18, 2013

Banks on the Mediterranean island of Cyprus did not open today and will remain closed until March 21 amid an accelerating financial crisis that has sent stock prices down on markets worldwide. Yesterday, the president of Cyprus, Nicos Anastasiades, announced that his government would receive a €10-billion ($13-million) financial bailout from the European Union (EU), the European Central Bank, and the International Monetary Fund. The president stated that with the Cyprian banking system on the verge of collapse, the country faces its worst crisis since the 1974 Turkish invasion. Cyprian banks invested heavily in Greek government bonds. Their value have been downgraded as Greece was forced into multiple bailouts to avoid default on its national debt.

Under the terms of the Cyrpian agreement, people with less than €100,000 ($130,000) in their bank accounts are to pay a one-time tax of 6.75 percent on their balances. Those with more than €100,000 will pay 9.9 percent. Most of the depositors who have more than €100,000 on account are Russian. In recent years, Russians have moved vast sums through banks on Cyprus, allegedly as part of money-laundering schemes. (Money laundering is a process that obscures the source of money obtained illegally.)

Nicosia is the capital and banking center of Cyprus. (© F1 Online/Alamy Images)

The Cyprus bailout follows those for Greece, Portugal, Ireland, and the Spanish banking sector. It is the first where bank depositors are to be taxed. German and Dutch officials have stated that from now on when a eurozone bank or member nations fails, bond investors and perhaps even bank depositors will be forced to share the loss. The one-time levy has sparked widespread public anger. Russian President Vladimir Putin has condemned it as “unfair, unprofessional and dangerous.”

Joerg Asmussen, a member of the European Central Bank’s governing council, stated today that there would be no objection to Cyprus altering the bailout terms. However, Cyprus will nevertheless be responsible for a €5.8-billion financial contribution, regardless of its source. Moody’s Investors Service, the New York-based credit ratings agency, warned that taxing individual bank accounts “signals euro-area policymakers’ willingness to risk triggering wider financial market disruptions in pursuit of other policy goals.”

Additional World Book articles:

• Crisis in the Eurozone (a Special Report)
• Economics, world 2010 (a Back in Time article)
• Economics, world 2011 (a Back in Time article)

October 12, 2012

The European Union (EU), an economic and political partnership between 27 European countries, won the 2012 Nobel Peace Prize. In a decision that aroused some criticism, the Nobel Committee praised what it said was the EU’s “most important result: the successful struggle for peace and reconciliation and for democracy and human rights.” The committee noted that “The EU is currently undergoing grave economic difficulties and considerable social unrest.” But, the award announcement said, “The stabilizing part played by the EU has helped to transform most of Europe from a continent of war to a continent of peace.” The EU also won praise for its efforts to maintain economic and political stability in former Communist countries in eastern Europe after the breakup of the Soviet Union in 1989.

A conservative British politician and party leader in the European Parliament was quoted by Reuters news agency as calling the decision “out of touch.” “The Nobel committee is a little late for an April fool’s joke,” he said. A Russian human rights activist called the decision “laughable.”

The European Union (EU), which promotes economic and political cooperation among its members, consists of 27 members: Austria, Belgium, Bulgaria, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. (World Book map)

The EU was formally created in the early 1990′s. Greater cooperation between the Eurpean states began after World War II (1939-1945) with trade agreements. Over time, expanded cooperation on economic issues led to the creation of the European Community (EC). In 1993, the EC members extended their cooperation into the areas of law enforcement and military and foreign policy. In 1999, 11 EU nations adopted a common currency, the euro. The euro is currently used by 17 of the 27 European Union member nations.

Additional World Book articles:

• Monnet, Jean
• Schuman, Robert
• Europe (1950) (a Back in Time article)
• Europe (1953) (a Back in Time article)
• European Union: The Euro (a Special Report)
• Crisis in the Eurozone (a Special Report)

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)

June 18, 2012

Antonis Samaras, leader of Greece’s conservative New Democracy Party, met with President Karolos Papoulias today to discuss the formation of a new coalition government. New Democracy won yesterday’s parliamentary elections with 29.67 percent of the vote, guaranteeing that Greece will remain in the eurozone, at least for now. The leftist Syriza party came in second with 26.9 percent of the vote. Syriza 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)