ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Grexit - A Modern Day Greek Tragedy

Updated on June 15, 2017
Alexis Tsipras - Greek Prime Minister
Alexis Tsipras - Greek Prime Minister
Junker and Tsipras - Junker doesn't take any more phone calls from Tsipras.
Junker and Tsipras - Junker doesn't take any more phone calls from Tsipras.
The Greek Parliament
The Greek Parliament
Round Table on Greece
Round Table on Greece
Olympic Stadium Athens - Built 1986
Olympic Stadium Athens - Built 1986
Merkel, Draghi (Head of ECB) and Junker
Merkel, Draghi (Head of ECB) and Junker
Merkel and Tsipras
Merkel and Tsipras

Background - The Magician

Greece adopted the euro in January 2001. Anyone who knew anything about economics in the months before Greece joined the Eurozone would have not believed that they would be ready in time. The induction criteria was a budget deficit less than 3% of GDP and overall debt less than 60% of GDP. Greece was adamant that they were within the criteria others including major economists around the world were certain that the numbers the Greek government’s statistics department gave were wrong. Their published budget put the deficit as 1.8% and the debt as 35%.

The head of the Greek government’s statistics department was called ‘the magician’ because he could make everything disappear. So even though Germany knew that Greece were massaging their economic statistics, their dream of a unified monetary Europe was not to be thwarted and a potential market for their products was not to be allowed to get away. So they turned a blind eye and Greece became a member of an elite club. The Eurozone with the help of Goldman Sacs engineered a financial swap which showed that Greece was within the limits set by the entry criteria. Greece entered the union and when the swap unwound the budget deficit was nearer 8% of GDP and the debt nearer 90% of GDP.

Why did the Eurozone turn a blind eye? The monetary union was Germany’s dream. They wanted a united and unified Europe with a single currency regardless whether the poorer countries like Greece sustain a strong economy without being able to manipulate the exchange rate. Also Germany wanted a market for its products and Greece was willing to buy all things German including duff submarines that listed in the water. Greece for its part saw a way of borrowing cheap money and fuelling their economy through high consumer consumption. For a while it worked, people borrowed and spent, the Greek government did the same and took enormous bribes in return for buying German goods. The Greek economic miracle lasted until just after the Olympic Games in 2004.

After the Olympic Games it was revealed that much of the infrastructure funds from the EU had not gone into the designated projects but into government minister’s pockets. So the EU had to provide additional funds for the infrastructure projects to enable the influx of tourists to be able to travel and stay near the Olympic stadiums. Roads, trams, metros, new buses, fresh tunnels and a new international airport were built. The debt to GDP ratio shot up to well over 100%.

In 2008 when the global economic crisis struck Greece was bankrupt. It had a debt to GDP ratio of 170% and a budget deficit of 15% and rising………However the interesting thing is that over this period both France and Germany broke every economic rule they had imposed on the other Eurozone countries.

What happened next?.............

Since joining the EU the Greek GDP per capita has fallen.
Since joining the EU the Greek GDP per capita has fallen.

A Guide to Greece's Woes

Greece in numbers

Greek Tragedy Acts 1 and 2

In the spring of 2010 Greece the right wing government collapsed under the debt mountain and George Papandreou won the subsequent election and PASOK the left centre party took office. A short few weeks later the whistle was blown and Greece went cap in hand to the IMF. In May 2010 the European Union and International Monetary Fund sanctioned the initial bailout of €110 billion, under the form of severe austerity measures. This initial rescue package missed all its forecasted targets as lenders’ were too optimistic on their economic plans for Greece and the Greek government procrastinated on certain reforms. So, in February 2012 the Troika (the Euro group, the ECB (European Central Bank) and the IMF (International Monetary Fund) confirmed the second salvage package worth a cool €173 billion provided by the then newly created European Financial Stability Facility. This agreement implied strong and to many unfair austerity measures but it did include the extension of the settlement period to 15 years, a reduction in the interest rate to 3.5 percent and a 53.5 percent haircut by the private bondholders. The write-down was done on €198 billion worth of Greek bonds, creating the largest debt default in the history of finance.

As the austerity measures took hold the Greek pensioners found that their spending power was cut by 50 percent because their pension was slashed by 50 percent. Taxes were raised and as the consumers stopped spending money, businesses closed and the unemployment rate soared. One third of the population landed on the bread line and food lines sprung up in every major city in the country. Salaries were slashed too, also by as much as 50 percent, so people could not pay their mortgages and had to default. There were so many defaults that the banks could not afford to auction off the defaulters houses and so gave them a mortgage payment indefinite holiday. The construction industry crashed as major infrastructure projects were cancelled, house values plummeted to zero and rents the same. Only the tourist industry managed to keep people employed and bring in much needed cash. Pharmacies ran out of medicines as the government ran out of money to pay the suppliers. Hospitals too were running out of medicines and staff as the government didn’t have the money to pay civil servants, doctors and teachers. The very fabric of the country started to crumble. Firemen and police were seen knocking on doors and begging for money for their families and to maintain their vehicles. The Troika had applied far too much medicine and the patient was slowly dying. Austerity only works to a certain level and if you don’t have a way of devaluing your own currency like the UK, the devaluation occurs through the population by reducing the GDP. Greece’s GDP has been reduced by 26 percent and its debt to GDP ratio has risen to 180 percent. The prescription was totally inappropriate.

Have your say.

Should Greece stay in the common currency?

See results

Austerity Bites

Greek Tragedy Part 3

The final fragment of the Greek tragedy started when Syriza secured the general election in January 2015 on an anti-austerity ballot. This radical-left party sought to contest the logic of the bailout deal and didn’t want the bailout program that finished on February 28 to be extended. However, the bailout program was extended – in return for Greece’s pledge to respect its debt responsibilities and make structural reforms –by the end of June 2015, just weeks before Greece is to make some large debt repayments.

Greece does not have sufficient income to pay its bills. It has to pay over €1.5 billion to the IMF in June and €7 billion to the ECB to repay government bonds (including the interest), which mature in July and August. The last €7.2 billion tranche of the current bailout program will not be paid if Greece doesn’t comply with the Troika’s demands. However, this tranche doesn’t cover what Greece has to pay back in June, July and August and its obligations to suppliers, pensioners and civil servants over the same period. It will probably have to postpone payments and who will take the brunt of that? The people of course. Also the deferment of state payments to suppliers will definitely hurt the economy even further. Greece’s economy is in recession again in the first quarter; it’s GDP contracted by 0.2 percent; as well as shrinking 0.4 percent in the previous period. To make the last payment (June 2015) to the IMF, Greece had to borrow money from diverse parts of the state administration, public enterprises and pension funds.

Christine Legarde Head of IMF
Christine Legarde Head of IMF

What Now?

Greece will probably manage to survive until July 20, when the €3.5 billion payment to the ECB is due. Without another bailout of at least €38 billion Greece won’t survive. Perhaps Greece needs to leave the common currency and take back the drachmae. It will be hard for a few months but then with being able to devalue their own currency will enable them to get out of this mess. Of course they will still owe huge amounts of money but they could just shrug their shoulders and not pay it back. After all the dream of nirvana was rather put upon them by the greed of the German government in the first place.

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://corp.maven.io/privacy-policy

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
ClickscoThis is a data management platform studying reader behavior (Privacy Policy)