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 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)