By Thomas Bell
In 2001, Greece adopted the euro as it integrated itself into the European Union. While the government accumulated substantial debt to pay for expensive social programs, further growth occurred throughout the first decade of the 21st century.
Then, the Great Recession struck, and Greece’s success story quickly turned to modern economic tragedy.
Much of what could go wrong in Greece, did. It was revealed that the government had been misreporting financial data, making the country’s deficits and debts seem much smaller than they really were. This incentivized investors and bond buyers, who would otherwise have been put off by such heinous financial figures, to invest in the country. In 2010, Greece’s bonds were downgraded to “junk” status by Standard & Poor, leaving the country in danger of defaulting on its loans and obligations. The Troika, made up of the European Commission, European Central Bank, and International Monetary Fund, handed Greece a bailout worth €110 billion, followed by revised and expanded loan deals. Though the costs of this handout were high, the Troika knew that if Greece collapsed further, it could endanger the euro as a whole and all the countries that rely upon it as their monetary backbone. In order to receive this assistance, Greece has passed fourteen controversial austerity programs, slashing public spending and raising taxes. Unemployment, poverty, and unrest have skyrocketed. In short, Greece has been decimated by the economic downturn.
But this all started around a decade ago. Other countries, like Ireland, Portugal, and Italy, faced similar crises, and all recovered by about 2013 or 2014. Meanwhile, between 2008 and 2015, Greece was in recession for all but 2014, when it saw a paltry growth rate of 0.35%. Last year, growth was limited to an insignificant 0.01%, while this year may well be the first since 2007 to see an expansion of the economy by over 2%. Why has Greece been left behind in Europe’s recovery?
The answer to this question is complicated.
Greece’s handling of its finances before the crisis has made it uniquely incapable of responding to the recession. By masking its budgets and deceiving the international community, it made investors unwilling to trust the government’s figures on the economy. High deficits and debts caved under the pressure of economic downturn, and the realization that those elements were higher than anticipated only made things worse. The country soon found its credit rating plummeting and its bonds rendered useless. Realizing that it could not pay its bills, it had to take money from the Troika.
But that money did not come without strings attached. Not only was it a loan that had to be paid back, but the aforementioned austerity measures were required by the Troika. These curtailments on spending and increase in taxes did not go well at all in Greece, with protests becoming a regular occurrence in Athens and elsewhere. Shops burned down, nationwide strikes were called, violent clashes with police occurred. One retiree, who saw his pension reduced to a tiny fraction of what it was before the legislation, committed suicide as an act of protest. He has become a martyr for many Greeks who believe that this time of suffering should inspire further government assistance, not a reduction in that aid.
But the fundamental issue has largely been Greece’s poor fiscal policies, dating back to before the recession. Upon joining the eurozone, Greece spent tremendous amounts of money on social welfare programs, attempting to emulate the generous policies of western and northern Europe. But unlike those countries, Greece was nowhere near able to pay for it all. The government happily added up the debt, with only minor attempts to reduce the deficit.
This lack of fiscal responsibility is also seen in military spending. Of the nations in the North Atlantic Treaty Organization (NATO), Greece pays the second most of any country in regards to spending as a percentage of GDP, allocating 2.46% for the military in 2015. This figure doubles German spending and easily tops the British and French, while only trailing the United States. And this occurred while the country was in recession, with figures looming higher before the crisis.
This poor decision-making in Athens led to the current dilemma, and solutions have not been particularly beneficial either. The bailouts have gone a long way towards helping Greece repay its debts, but the austerity programs enacted in the interim have been devastating. Wages for public employees were slashed, while the national minimum wage dropped by nearly a quarter. New tax increases targeted the VAT, landowners, luxury goods, gasoline, and more. All this, while the billions of euros in bailouts were used to pay back banks and financial entities. This has largely meant that average Greeks have sacrificed numerous benefits, without necessarily seeing any direct aid. These policies are what has prolonged the suffering for so many and mired the recovery effort for so long.
However, it seems that the future may not be quite so bleak. Indications show that the Greek economy will grow this year, and likely by over 2%. An effort to privatize certain industries, such as transportation, has resulted in increased business enterprise in the country. Unemployment, while still high, is falling; the government predicts that it will match the European average near 2020. Tourism, one of Greece’s most important industries, has increased substantially.
In the end, it will be a difficult road for Greece. Despite the improvement, the country still remains far below its pre-recession heights in terms of economic size. With the economy only just barely expanding, it will be a long time before it resembles its former self. The crisis serves as one of the most telling and chaotic legacies of the Great Recession and serves as an example for the future. Greece, a decade after the crash, is only just beginning to find its footing again and remains a country defined by its struggle to survive.