5-minute Business News
by Alex Agouridis
“How can we survive on sixty euro a day? How can I feed my children!?” Yianni, my taxi driver, loudly proclaims in Greek. It was sheer coincidence that I happened to be travelling through Greece during the protests and historical referendum that took place in July 2015. The country was in the midst of deciding whether to accept or reject bailout deals and harsher austerity conditions for the country’s loan defaults.
Greece’s debt has risen far over €300 billion and the country has defaulted on recent loan payments of €1.5 billion to the International Monetary Fund (IMF). The failure of further bailout talks has forced closure of banks in Greece, causing the banks to limit daily cash withdrawals to a measly €60. There is a combination of factors that has led to Greece’s crippling debt and floundering economy, including tax evasion, corruption, and perhaps most importantly, massive spending. The creation of the Eurozone prompted economic unity between the countries within it, but the lack of political unification triggered radical differences in the way income was handled country to country.
The 2008 financial crisis was an event that shook the world and had a devastating effect on Greece. While other countries, such as Canada or United States, could partially mitigate the adverse effects of financial crises by printing more or less currency, thereby inflating or deflating their currencies accordingly, Greece has been unable to do so because the European Central Bank controls all currency within the Eurozone. While all Eurozone countries share this concern, it had a particularly negative effect on Greece due to the country’s already serious deficit, which, as announced in 2009, had been understated for years. Greece was then forced to begin borrowing rapidly from financial markets and to accept bailouts with debilitating conditions. According to the Greek National Statistics agency, there has been a 25% fall in the country’s GDP since 2010 and the total Greek unemployment rate currently hovers around 26%.
According to Joseph Stiglitz, a Nobel Laureate and former Chief Economist of the World Bank, the Eurozone is in dire need of a debt-restructuring framework. Stiglitz points out how debt played a significant role in the 2008 global financial crisis, as well as the Latin America and East Asia crises in the eighties and nineties, respectively. He puts forth the idea that debt forgiveness must be considered, and austerity conditions lifted, in order for Greece to move forward and have a fighting chance of recovery. Judging by the 61.3% majority “No” vote by Greeks to accept the latest bailout and austerity conditions, the citizens agree that current austerity conditions are harmful, especially to youth who now specifically face a 50% unemployment rate.
Following the referendum results, it was widely believed that there would be a ‘Grexit’ from the euro, and reversion to the original currency of Greece – the drachma – which could mean temporary calamity, but a potentially faster recovery time for the country and its citizens. It was at the July 12th Euro Summit, only one week after the referendum, that the Prime Minister of Greece, Alex Tsipras, who urged citizens to vote “No”, changed his position and agreed on measures to keep Greece in the euro.
It is deeply unfortunate that ordinary Greek citizens, especially the youth, are paying for the mistakes of the government who chose to understate deficits and overspend for years. In the hope that amendments will be made to the severe austerity conditions currently imposed, Greece and its economy will flourish once more in due time.