Editor’s note: This article was first published in June 2015 in late June 2015, during the negotiations before the 5 July referendum, and its closing points describe that moment. Greece later accepted a third bailout (August 2015), stayed in the euro and left its bailout programmes in 2018. Japan’s debt of 200% of GDP is a 2015 figure.
1. Like other countries, Greece lied about its financial situation when it joined the euro. The euro is a very nice project in theory, but in practice it does not benefit every country equally, Spain among them, one of the euro’s big losers.
2. “Only when the tide goes out do you discover who’s been swimming naked.” This famous investing saying came true in Greece (which was swimming naked) when the 2008 crisis broke out and the Greek situation became visible: widespread corruption in government and banking (as in other countries).
3. Since nobody wanted to break up the eurozone, and even though everyone knew Greece’s debt was unsustainable, a series of bailouts followed to save Greece and keep it in the eurozone.
4. When a country’s debt crosses the line into unsustainable, a common monetary policy that usually saves the situation is to devalue the currency, which boosts income and makes exports cheaper. But Greece cannot use this policy because it is part of the European Union.
5. “Fire up the printing presses.” In the past, anyone who said the solution was to print more money was called ignorant, because the measure can backfire in the long run. But when experts call it “quantitative easing” it sounds better, although at the end of the day it means printing more money. The United States creates billions every month to prop up its economy.
6. But Greece cannot do this either, because it belongs to the European Union. Like the rest of the EU countries, we share a common currency, and each country’s individual central bank cannot change monetary policy.
7. If you cannot create money or devalue the currency, there are only two solutions: a) leave the euro and go back to its own currency, which is already too late, because the country would become a pariah in the markets; b) default on the debt, which would mean the markets stopped buying Greek debt and drove the country to ruin; c) be bailed out.
8. “These are not bailouts, they are nooses around the neck.” When a bailout comes with austerity measures, it is not really a bailout: you save the Greek government, but you do not save the Greeks.
9. And Greece was bailed out several times. Each time, its situation got worse, because every bailout came with conditions for repaying the debt, and those very conditions make the debt impossible to repay.
10. Merkel’s bailout policy rests on a strange economic theory: that the way to pay debts is to cut spending. That means less help for industry, less investment in infrastructure and more economic pressure on families, who after all are the consumers. In the end, it is citizens and business owners who have to pull a country forward. If they have no money to spend, the country goes down the drain.
11. The consequences of the Greek bailouts. The austerity measures imposed by Merkel, the IMF and the ECB have left Greek citizens with wages and pensions cut by 50%, more than 350,000 businesses closed, youth unemployment above 60%, a 25% drop in GDP, mass emigration of young people and 3,000 documented suicides (probably more). Ironically, Greek debt has grown beyond its 2009 level, and with each bailout it rises instead of falling. Greek debt now stands at 175% of GDP.
12. But why is Greek debt so worrying? By world standards, Greek debt is not that large, and a high level of debt is not necessarily bad for a country. In fact, Japan’s debt-to-GDP ratio is higher than Greece’s (200% of GDP). Why is that?
13. A current-account surplus is not always good, and a deficit is not always bad. In fact, one of the ways some countries have climbed out of the crisis is by taking on more debt and channelling those resources into their industry.
14. A simple example. If someone takes on a debt and the only way to pay it back is by working, and the lender cuts off their hands to make them pay, that person can no longer pay, because they can no longer earn money by working. The Greeks have had their hands cut off. And then came the elections.
15. And Greece voted to swap speeches about austerity for speeches about prosperity, turning to parties that promised not to pay the debts so as to stop strangling the people.
See also: Conclusions from Spain’s 15M protest (15 May)
16. And those new politicians won.
17. For some reason, I hear in some Spanish media that what is happening to Greece is now the fault of the politicians who have been in government for a few days.
18. And these new politicians will probably have to let the people down. Right now, negotiations are under way to try to reach a deal that keeps Greece in the euro without strangling the Greeks even further. That seems unlikely, and the Greek population may have to be punished even more, with further tax rises and cuts.
And that, basically, is what has happened in Greece.
Featured image: Warren LeMay, CC BY-SA 2.0, via Flickr.
