So basically, Greece’s economy has been difficult for the last couple of decades, but things really changed in 2001. Previously, Greece had kept it’s economy and debt under control. Because it used the Drachma, and it was not a common currency, they could pretty much choose how much it was worth in order to keep themselves afloat.
In 2001 Greece joined the Eurozone, which meant that it had to change to the Euro. This came with a whole host of problems, because the economy no longer solely belonged to Greece, it belonged to 18 other countries as well, most of which were much more wealthy than Greece was, Germany being an example.
So Greece found that although being a part of the Eurozone meant it had loads of other countries to back it up when it got into trouble, it never really found its footing with the Euro. This is partly because in order to get into the Eurozone, Greece covered up the fact that it already had a fair bit of debt, which it didn’t have time to recover from before being launched into a totally new currency. When the Karamanlis party were elected to power in 2004, it realized that Greece had about 5 or 6 times more debt than they had originally admitted to, but they chose to say nothing to the rest of the Eurozone because they were just about to host the Olympics (which is sort of a big deal when you consider they invented the thing).
Most of you remember that there was a big financial crisis in 2007-2008. I personally didn’t understand what was happening because I was about 13. All I knew was that the Freddo bar doubled in price, which left me very sad. I won’t go too much into it now, but basically American real estate all went up the shitter, and that caused massive issues for financial companies worldwide who had stakes in the American property market. This led to a financial crisis on a global scale. And who did it hit the hardest? You guessed it; Greece.
Greece were not prepared for this, and eventually they couldn’t cover their difficulties anymore. It was at this point that it became clear to everyone else that Greece had lied about its economic status when entering the Eurozone. After others realized this, Greece’s credit rating plummeted because everyone realized how difficult it would be for them to pay back their debts. Everyone would charge them ridiculous amounts to borrow any money, meaning that the debt would increase. The other Eurozone countries realized that if Greece couldn’t repay its debts, then the borrowing and lending patterns of the entire zone would be implicated, and so they decided to help a brother out.
In 2010 Greece was given a bailout loan from the Eurozone of 110 billion Euros. The loan came with the condition that Greece had to become better at collecting and organizing citizens’ taxes, and to make some budget cuts. The Greek government had to axe a load of jobs, which meant that those people were poorer. Because those people were poorer, other business suffered and had to axe a load of their employees. Basically everyone was poor and the taxes got harder to collect. So that flopped.
Unemployment soared to 30%, and by 2012 Greece owed about 135% of it’s net worth (or GDP, which is the term for the value of all the goods and services a country can produce in one year). So it would take about a year and 128 days of earning before Greece could pay back its debts, without spending anything else.
So that brings us to 2023. Unemployment is pretty bad, and Greece currently has a left-wing government, who try as they might with the cuts, cannot make the budget balance AND pay back Greece’s enormous debt. Banks started to go bust, and made a cap on the amount that the average citizen could withdraw from their bank account each day. In June, they couldn’t afford a scheduled payment, and a proposal was made (this was in the news earlier this year).
Greece had two options:
A) The Eurozone agreed to pay an 86 billion Euro bailout, provided that Greece met its austerity demands of higher taxes, lower pensions, and privatization of national services.
B) Leave the Eurozone and return to the Drachma. This could mean a period of uncertainty, followed by huge inflation that will affect everyone that lives in Greece. Wages and Pensions may have to be frozen completely.
Others argued that the other Eurozone countries could afford to wipe Greece’s debts entirely in order for them to get back on their feet, but so far this has not happened. Greece chose option A, and their debts are ever expanding. It is looking pretty bleak for the Greek economy at the moment, and it’s hard to see whether they will ever be able to pay back the debts as they stand, even with extreme austerity measures..
First imagine that each country in the EU runs a pub on the same street:
Each pub is run separately, and all accept different currencies. Because The Greek Islander is the only one that takes Drachma, the management can choose how much to charge for drinks without worrying about competition, and is fully in control of the currency. It’s not the best run pub in the world, and it still owes some of it’s investors a bit of money, but it’s relatively stable.
One day, The Greek Islander’s manager was walking along europub lane, when he saw some of the other pub managers in a little huddle. He went over and learnt that they were thinking of collaborating and turning their pubs from independent pubs, into franchised pubs (a bit like a Wetherspoons) called “The Eurozone pub group.” They had agreed that they would all use the Euro as currency. They could all trade with each other using the Euro to make things simpler, the competition on Europub lane would decrease (as benefit to one Euro-zone pub would mean eventually benefit to all), and it would keep their accountants happy to be using all one currency.
Greece thought this made sense, and decided to agree to the franchise. When they asked him if he had any debt, he said he owed about 3% of the pubs net worth, which they could easily pay back in the next 6 months. He was lying, he actually owed about five times that, but he knew that his accountant could make up some numbers if he needed her to.
“Should we invite the boys over at The English Bulldog?”
“No” said France “They’re happy with the pound. Besides they’re rude and they keep starting fights with the other pubs for no reason.”
Anyway.
Greece made all the changes over at the pub. The employees seemed pretty happy, and the manager thought that things would start to look up with the Euro in place. More importantly, he thought that if the debt collectors were to come round, he might be able to persuade another pub to help him out. The German Sausage’s business was booming, so maybe they could help. The accountant warned that the pub might have to start charging more tax from its employees, and lessening some of their pensions schemes in order to keep up with the other pubs, but largely these warnings were ignored.
Unfortunately, the change to the Euro meant that The Greek Islander couldn’t charge whatever it wanted for drinks anymore, because there had keep up continuity between all of the branches of The Eurozone Pub Group. So instead of charging 10 Drachma for a pint, they could now only charge 3 euros. This was fine for some of the other branches, because their finances were much more stable than The Greek Islander’s, but the manager still didn’t come clean about the amount the pub owed. He didn’t want to be kicked out of the group this early on.
A few years later, the manager retired, and the new one found out about the debt lie. He was pretty unhappy, and asked the accountant why she hadn’t spoken up. She said that she had, and had been ignored. She advised that the new manager come clean to the rest of the pubs, but he refused, as they were holding a very special darts tournament next week.
In 2008, it seemed the whole world went bankrupt, and all of the pubs were forced to raise their prices. No-one could afford to come into the pub any more, and having not planned for this moment, The Greek Islander started to struggle. It became clear to all the other pubs that the original manager had lied about the pub’s debts earlier on. The other Eurozone pubs knew that they had to help The Greek Islander out in order to stop the franchise being weakened, and so they lent the pub a bit of money, on the understanding that they would have to demote some staff and collect more taxes from the staff. Because the staff were earning less in their jobs, they couldn’t afford to be taxed as much as the Eurozone pubs wanted, and so that idea failed.
