We’ve been talking about the Greek problem for weeks, even months. But in fact, the trouble started long before Prime Minister Alexis Tsipras and his government took over. A bit of history won’t hurt.
According to Angel Gurria, Secretary-General of the OECD, it was back in 2004 when the first discomforting signs appeared. The Greek government at the time applied for membership in the Eurozone and under-reported the country’s budget deficit figures, citing only 5 per cent when in fact it owed more than 15 per cent. The then-government admitted to the incorrect number.
Since that time, and through several Greek governments, the debts have not managed to stabilize and have remained on the books until now when the ECB began demanding that the money owed to the IMF be paid back.
Once the euro was adopted, Greece saw its GDP zoom up and other countries took notice. The ECB and private banking institutions offered Athens loans so the country could develop infrastructure projects such as organizing the 2004 Summer Olympic Games in Athens. Things looked promising for a while but when the financial crisis hit all over the world in 2007, Greece’s economy began to falter. It lost 20% of its GDP between 2008 and 2010 and was finding it difficult to continue making any loan payments to its creditors.
Several economic changes were introduced since that time in an effort to curtail government spending and loosen up money to meet the country’s debt obligations but nothing seemed to help much and the Greek people were far from pleased with some of the austerity measures they were hit with.
The first austerity program included a freeze on the salaries of all government employees, a 10% cut in bonuses, and cuts in overtime workers. This was followed only a month later by a freeze on pensions, an increase in VAT from 19% to 21%, increased taxes on fuel, cigarettes, alcohol and luxury goods and cuts in public sector pay.
Greece’s credit rating started dropping and never turned around.
It was no surprise that by the time January 2015 elections were held, the people were so fed up with all their cuts and bruises that they voted Alexis Tsipras, leader of the left-wing Syriza party since 2009, into office on a non-austerity ticket.
That was the beginning of the end. A month after taking office, in February 2015, the IMF called on Tsipras for payback of the overdue loans and when none was forthcoming, the Eurogroup agreed to allow Greece a 4-month extension. When June came around and no money was available, Tsipras requested another extension till the end of the month.
It was at this point that the Greek people took to the streets and made their voices heard once again. Forever anti-austerity, they demanded a referendum to vote on whether or not to accept additional Eurozone bailout provisions or look to their own government for measures that would enable them to fend for themselves.
We all know what happened after that. The ‘No’ vote squeaked through, leaving both Tsipras and the Eurogroup leaders wondering what would happen next. It was a gamble and gambling is never a good idea.