Greece’s affair with the euro began with the grandest of hopes. But then it all went terribly wrong.
In talks over the weekend, Greek Prime Minister Alexis Tsipras faced an awful choice: Either abandon the euro currency and watch Greece’s economy collapse, or accept more austerity in the knowledge it will cause his people even more torment.
He chose the latter – slow pain rather than utter disaster.
It was a far cry from Greece’s early dreams. The euro seemed at first a shining star, a common currency that would ensure prosperity on a par with the rest of Europe.
And Greece was an eager suitor. The country approved the euro in 2001 – in time to be among the first countries to use the new currency when the first bank notes rolled out in 2002.
In the beginning, the most ambitious attempt ever to create a new multinational currency all seemed to go well. The predicted problems with banks and vending machines never materialized. The euro surpassed the dollar in value. The launch was hailed as a success.
And yet for Greece, it seems now to have all fallen flat. Just how did the country get into such a fix?
Greece adopts the euro …
2001: Greece became the 12th – and last – country to join the eurozone before the launch of the euro at the beginning of 2002.
To join, a country had to demonstrate it had achieved “economic convergence” with the other eurozone members – a requirement meant to ensure that different countries would not jeopardize the common currency.
When Greece was accepted, Finance Minister Yannos Papantoniou described it as a day that would place Greece firmly at the heart of Europe.
But warnings were sounded. The president of the European Central Bank, Wim Duisenberg, said Greece had much to do in terms of improving its economy and controlling inflation.
… but bogus figures hide the true extent of its deficit.
2002: Everyone now agrees that Greece cooked its books.
One of the economic convergence requirements was that a country not have a budget deficit of more than 3% of its gross domestic product.
It was a requirement imposed on all countries, but one not followed over the years by all eurozone countries – not even that advocate of strict discipline, Germany.
Yet the extent to which Greece hid its economic problems from fellow eurozone members would prove staggering.
Two years later, a new government discovers the true figures …
March 2004: In March, the center-right government of Prime Minister Konstantinos Karamanlis came to power. And it took a look at the books.
What it discovered was appalling. The budget deficit was not 1.5%, as reported, but 8.3% – 5½ times higher than thought.
The Karamanlis government faced a dilemma: What should it do with this shocking information?
… but says nothing as the Olympics approach.
August 2004: The Olympic Games were coming — returning to Greece, the land of their birth. It was the country’s turn to shine on the international stage.
Well, the government thought, no need to upset people, inside Greece or out.
So instead of revealing the extent of the deficit – and starting to deal with it – the government decided to say nothing.
The global financial crisis hits …
2007: The financial crisis had its roots not in Greece, but in the United States, 5,000 miles away.
From there, it spread around the world.
It hit countries around the globe to varying extents. Other European Union countries were affected severely – notably Spain and Ireland – and others suffered as well.
… and Greece is slammed harder than many other countries.
2008: But few countries were less prepared to deal with an economic downturn than Greece. With a yawning gap between revenues and expenditures, it was particularly vulnerable.
In 2008, the country’s tax collection, such as it was, collapsed. The hole in the budget grew too big to hide.
The country needed help.
And the other eurozone countries, fearing contagion – that, if Greece defaulted on its debts, other eurozone countries’ cost of borrowing would rise to unsustainable levels – felt they had no option but to give Greece the help it needed.
International lenders rescue Greece, but …
2010: In 2009, international investors, spooked by the revelation that Greece’s previously announced debt and deficit figures were inaccurate, became worried about the country’s ability to pay its debts.
Greece’s credit rating was downgraded, first by Fitch and then by Moody’s.
The country’s cost of borrowing spiked, and the situation risked running out of control.
So the other eurozone countries, in the form of the so-called troika – the European Commission, European Central Bank and International Monetary Fund – stepped in to prop up the patient.
… the conditions attached to the bailouts increase unemployment.
2010: In May 2010, leaders of the eurozone and the Greek government agreed on the conditions for a 110 billion euro bailout loan. But the bailout came with strict conditions – among them that the government improve its tax collection and save money to bring its budget into balance.
Saving government money, though, meant laying off government workers. Those laid-off workers had less to spend, so other businesses suffered and laid off workers, too.
Unemployment rose, depressing government tax revenues. The crisis deepened.
Greece borrows new money to pay old debts …
2010-2012 Protests grew. The country tossed out the government of social democratic Prime Minister George Papandreou and ran through two provisional prime ministers – all in 2011 – before turning to the conservative party of Antonis Samaras.
Still, the bailout medicine didn’t do the trick.
In February 2012, the government accepted another bailout loan, bringing the total borrowed to 246 billion euros. A new austerity plan was agreed to as well.
The amount owed to the international lenders was now 135% of the country’s GDP.
And things got worse.
Unemployment rose to near 30%. Youth unemployment soared over 50%.
… and the country runs out of money again …
2015: Despite austerity, the budget refused to balance.
More money was needed – and, realistically, debt relief as well if the country was ever to stand again on its own two feet.
Greece was now led by Tsipras’ left-wing government. Relations between representatives of the international lenders and Tsipras and his finance minister, Yanis Varoufakis, were poisonous – hampering negotiations.
In June, the negotiations broke off, with each side apparently daring the other to be the cause of a Greek exit from the eurozone.
leading to the current crisis.
At the end of June, Greece defaulted on a repayment to the International Monetary Fund.
The banks started to run out of money. Capital controls were introduced, limiting the amount of money people could withdraw each day.
Varoufakis resigned at the Prime Minister’s behest, saying he was an impediment to negotiations. Talks resumed.
After weeks of brinksmanship, including the rupture of negotiations and the holding of a referendum – in which the Greek people apparently voted “No” to more austerity – a deal to lend the country more money and have the government sell some assets was reached.
The country will not fall out of the euro. But it could fall further into the economic abyss.
Whether further austerity will ultimately save the economy by restoring investor confidence or increase unemployment for a population that is already suffering – or both – remains to be seen.
In either event, the gloss is off the country’s affair with the euro.
And, for the Greek people, more pain lies ahead.