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)

July 13, 2015

Greek demonstrators protest against austerity measures proposed by the EU, demanding Greece leave the European Union. Credit: © Yiorgos GR/Shutterstock

After an 18-hour session of talks, the European Union announced that it was willing to consider offering a third financial bailout to the Greek government. The value of the bailout is around 82 billion to 86 billion euros ($91 billion to $96 billion). The banks in Greece have been closed for going on the second week, most Greek citizens are under currency restrictions for how much money they may withdraw from their accounts on a daily basis, and the nation is nearly out of currency. If a bailout did not come soon, Greece would have been forced to declare bankruptcy and would likely have left the EU.

By Wednesday, July 15, the Greek parliament must vote in favor of the new bailout terms, which were seen by some experts as being fairly harsh. Some of the terms Greece must agree to include:

1. A possible extension on the time frame in which debt payments are due, but no reduction in the overall debt owed by the Greek government.
2. A demand that Greece begin to privatize some of its assets; for example, the nation’s state-owned electricity grid could be sold off to private companies and the profit used to create a fund for investment and for paying off debt.
3. A reform of the Greek pension and tax systems.

If the Greek parliament agrees to the EU terms, the bailout package must also be approved by the parliaments of Germany and Finland. If these governments all approve the package, Greece would also be eligible for “bridge” financing, or immediate short-term financing, to stave off imminent bankruptcy. Experts were uncertain if Greek Prime Minister Alex Tsipras would be able to persuade members of his left-leaning party, Syriza, to vote in favor of the package.

Other Behind the headline articles: 

• Greece Votes Oxi! (July 2015) 
• Greece Closes Banks, as Economic Crisis Escalates (June 2015)
• Greece Gets a Reprieve (February 2015) 

July 6, 2015

Campaign signs urge Greeks to vote “no” in the July 5 referendum. Credit: © Conejota/Shutterstock

In a surprising turn of events in the Greek debt crisis, Greek citizens on Sunday, July 5, overwhelmingly voted “no.” (Oxi, pronounced OH hee, is the  Greek word for no.) Experts expected the vote to be close; it was not. Some 60 percent of the voters chose, well, it’s not certain what “no” meant. The exact policy to which they voted “no” is not clear to anyone. Last Friday, after fruitless negotiations with European Union (EU) officials on remedies to the Greek crisis, Greek Prime Minister Alex Tsipras pulled out of the negotiations. Tsipras’s position is that the austerity measures the EU required for another loan to the Greek government are actually causing Greece to lose ground on paying off its debt. Because the Greek economy shrank by 25 percent over the last five years of ongoing financing and demands for fiscal cuts by the European Central Bank and the International Monetary Fund, Greece actually owes a larger ratio of debt to its gross domestic product (GDP) than it initially did. (In 2010, the ratio of Greek debt to GDP was around 150 percent. In 2014, that figure had risen to around 175 percent.) The amount of debt Greece owes is thought by Tsipras and his Syriza government to be unsustainable (meaning it could never realistically be paid back). Greek government representatives want the amount of debt owed to be reduced. Other nations in the EU, however, feel they are using money from their taxpayers to finance Greek extravagance.

Tsipras called for the Greek people to vote on the terms of the EU’s bailout offer. Before the people of Greece could vote, however, the creditors took the bailout off the table. The Greek referendum went ahead anyway, with Tsipras saying that a vote of “no” would strengthen his hand in future negotiating.

During the week before the referendum, Greek banks were closed (later in the week reopening only for pensioners), and Greek citizens (except for pensioners) were under currency restrictions that allowed only 60 euros (about $67) per day to be withdrawn per person. Experts predict Greece will run out of currency sometime this week. In addition, campaign advertisements from the “yes” side, said to have been placed by Greek oligarchs, painted a bleak, and even frightening vision of what was in store for the Greek people if they voted “no,” threatening them with a country without gasoline and medicine. Some experts on Greece felt the pressure to vote “yes” may have backfired, angering the Greek people instead of encouraging them in a “yes” vote.

Pensioners congregate outside a National Bank branch ATM in Thessaloniki on July 1. Greek banks re-opened for pensioners only on July 1, allowing them to cash up to 120 euros. Credit: © Ververidis Vasilis, Shutterstock

Greece has a habit of saying “no!” On October 28 of each year, Greece celebrates a national holiday, Oxi Day, commemorating that date in 1940. During World War II (1939-1945),  Italian fascist Benito Mussolini requested that his troops be allowed to enter Greece to occupy it, promising there would be no killing of Greek citizens. Greek dictator Joannes Metaxas replied, “oxi.” Greece suffered a hard war during World War II, occupied by Germany, Italy, and Bulgaria until 1944.

After this most recent no in 2015, several European leaders have called for an immediate resumption of talks with Greek officials in an attempt to work out the financial problems and keep Greece in the eurozone, or at least in the EU.

Other World Book articles: 

• Greece (1940-a Back in time article)
• Greek Debt Crisis Becomes More Acute (Behind the headlines, February 29, 2015)
• Greece Closes Banks, as Debt Crisis Escalates (Behind the headlines, June 29, 2015)

July 1, 2015

At midnight on June 30, the government of Greece officially defaulted on its loan payment to the International Monetary Fund (IMF). Greece is the first Western nation to ever default on an IMF loan since the organization was founded in 1944. Last weekend, Greek Prime Minister Alex Tsipras stated that Greece could not accept the European Union (EU) terms of increased fiscal austerity as a condition of receiving the financial payments Greece needed to repay the IMF without holding a national referendum on Sunday, July 5th. Such a loan default as Greece has had with the IMF makes the exit of Greece from the eurozone and the EU  (known as Grexit), far more likely.

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

U.S. President Barack Obama called on leaders on the EU side of the conflict to try loosen some austerity policies and try to find a compromise position to keep Greece in the eurozone and EU, saying “You cannot keep squeezing countries that are in the midst of a depression.” This morning, in a televised address, Tsipras announced his government would be willing to accept the bailout offer made earlier this week with some minor adjustments. It was uncertain whether this concession will solve Greek’s mounting financial pressures. The banks in Grece remain closed to maintain what little currency is left in the country. ATM’s have a withdrawal limit of 60 euros per-person per-day, except for tourists using debit cards issued in foreign nations. (Tourism makes up around 20 percent of Greece’s economy.) German Chancellor Angela Merkel stated that no talks with Greece should resume until after Sunday’s referendum is held, meaning that, for now, it is uncertain if the EU bailout is still on offer.

Other World Book articles:

• Anti-Austerity Party Wins Greek Parliamentary Elections (January 2015 Behind the headlines)
• Greece Gets a Reprieve (February 2015 Behind the headlines)
• Greece Closes Banks as Economic Crisis Escalates (June 2015 Behind the headlines)

June 29, 2015

After lengthy rounds of fruitless economic talks and bailout discussions between the government of Greece and European Union officials, something is finally happening. Unfortunately, what is happening may not be a very positive development for Greece or a unified Europe. Greek Prime Minister Alex Tsipras left the EU debt negotiations in Brussels this weekend and stated that he would put the EU’s current bailout package to a vote with a national referendum to be held in Greece on July 5. The 18 other officials representing the rest of the nations who use the euro as currency (the eurozone) voted against extending the deadline for Greece to pay a 1.6-billion euro ($1.8-billion) payment due to a creditor—the International Monetary Fund (IMF)—to July 6. The payment is due tomorrow, June 30, and unless there is a major change in thinking, the Greek government is about to default on its debt. For the first time, the possibility of Grexit—the nickname used for Greece leaving the European Union and abandoning its use of the euro as currency—seems possible.

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

Should the referendum go ahead on July 5, as Tsipras requested, a “yes” vote would mean that the Greek people were willing to accept another round of cuts to their national budget in order to qualify for aid  that would allow them to make a repayment of 1.6 billion euros to the IMF. A “no” vote, in essence, would lead to Greece leaving the EU and reverting to its former currency, the drachma. A default tomorrow, however, may also lead to Greece leaving the EU.

News of the latest developments in the talks left the people of Greece worried and they began to withdraw large sums of money from their bank accounts. The lines at ATM’s were hours long in some areas. To prevent an actual bank run, yesterday Tsipras announced that banks in Greece would be closed starting today through next Monday (July 6). In addition, withdrawal amounts can be no more than 50 euros per day for Greek citizens.

Since 2010, Greece has been mired in a lengthy financial crisis. In 2010, the economic groups known as the “troika”—the European Central Bank (ECB), the IMF, and the European Commission—demanded Greece accept a harsh austerity program in order to receive a financial bailout for its banking system, which had been faltering since 2008. Since the agreement with the EU in 2010, Greece has raised taxes, cut pensions, and cut wages. After five years of financial pain, Greece has managed to reduce its primary deficit (the amount it borrowed, not including interest.) Nevertheless, because the gross domestic product (GDP) of Greece has declined by 25 percent, in reality, Greece has paid off very little of its debt when that debt is viewed as a ratio of GDP (as most economists do view such debt). When the debt ratio if accounted for, Greece actually owes more than it did five years ago. In 2010, the ratio of Greek debt to GDP was around 150 percent. In 2014, that figure had risen to around 175 percent.

Greece has been in a serious recession since 2008 and currently has an unemployment rate of 27 percent and a youth unemployment rate of 60 percent.  In January of this year, Greece voted its sitting government out of office and voted in a new government led by Tsipras of the Syriza Party. Syriza ran on a platform that promised to end austerity and attempt to lessen the debt owed to creditors. Many of those creditors, however, are French and German banks that are not keen on agreeing to reducing the amount Greece owes. In addition, the EU fears that if it relents to Greece’s demand for a lower payment amount that other less affluent EU nations, such as Portugal, will follow suit.

Other World Book articles:

• Anti-Austerity Party Wins Greek Parliamentary Elections (2015-Behind the headlines)
• Greek Debt Crisis Becomes More Acute (2015-Behind the headlines)
• Eurozone Crisis—N0 End in Sight (2012-a Special report)
• Crisis in the Eurozone (2010-a Special report)

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)

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)