The Root of the Greek Economic Crisis and Why 35 Years Later the Country is Still in Debt With No End in Sight

Workers march in a strike against the Greek government, called by Greek Labor Unions.

If you were to ask the average person their opinion on the current state of the Greek economy, their response most likely would not be positive. Over the past ten years, Greece has steadily fallen into an increasing amount of debt and has come to be known as a nation with a high economic dependence on other countries. Why is this the case? Political corruption, coupled with the spending boom of 2001-2007 and the recession of 2008, pushed Greece down a rabbit hole with little chance of escape. The country has essentially tied itself in debt for the next 50 years, hindering any progress that may have otherwise occurred.  

Greece joined the European Economic Community on January 1, 1989. At the time of their entrance, their debt to GDP ratio, comparing the country’s public debt to its gross domestic product, was only 28%. Furthermore, their budget deficit was less than 3% of its total GDP, making Greece an economically stable nation. However, 1981 was the last year Greece held this economic status.  

Shortly after Greece’s entrance to the EEC in 1981, the Panhellenic Socialist Movement Party (PASOK) rose to power. PASOK was founded in 1874, only seven years before Greece’s entry. The young party was still figuring itself out as it rose to power, which to some degree, contributed to the overwhelmingly negative effect it had on Greece. The Panhellenic Socialist Movement Party, determined to keep control of the Greek government, made unrealistic promises to Greek voters to ensure their vote. One of PASOK’s main selling points as a party was their extravagant and unsustainable welfare policies, which directly led to the demise of Greek economic stability.  

Once PASOK made these promises to the Greek people, they were forced to uphold them to secure the citizens’ continual support. Instead of encouraging business employees to earn higher salaries based on merit, as the country previously had, the Greek government raised salaries for workers in the public sector every year regardless of how an employee performed. Additionally, pensions became so large that most men could retire by the age of 58, and women could retire as early as 50. While these new measures seemed attractive, the Greek economy could not support the extreme level of handouts required for the welfare plans. With both paid vacation leave and overwhelmingly large pensions, the desire for many to work as hard as they used to quickly diminished. Essentially, the Greek government bred a dependent, unmotivated generation of workers who relied on an economy that could not support itself, let alone its people. Speaking on the crisis that originated in the 1980s, Stavros Dimopoulos, a 23-year-old university student, told CNBC in 2019, “I still think the crisis exists. It’s more than in one field now, [it’s] not only [a] financial crisis, but it’s a crisis of our values […] I don’t think it’s better now […] it is really a stressful period for Greece,” Workers who were used to working hard for their salaries suddenly no longer had to perform to the level they once did, as they now were guaranteed the same pay no matter the quality or productivity they put into their workday. Just as suddenly as the new salaries were put in place, the Greek economy collapsed during the 2007 global economic crisis, forcing workers to work even harder than they had before the welfare “improvements.” This was the foundation for the economic crisis in Greece for the next 30 plus years.

In 1999, the European Union introduced the Euro, with 11 countries adopting it as their national currency. While Greece was a EU member, the country could not adopt the Euro because it failed to meet the EU’s fiscal standards. Greece did not have the required inflation level of below 1.5%. Instead, their inflation level sat at 2.64%. Furthermore, the country no longer attained its previous debt to GDP ratio, which the EU required to be under 60%. Greece also failed to keep its budget deficit below 3%. When Greece joined the Eurozone 2 years later in 2001, they did so immorally, faking their financial data to appear to meet the EU standards. While other members of the Eurozone have also been recorded misrepresenting their finances to adopt the Euro, Greece extended their lies the furthest.  

In an attempt to put money back into the government, Greece limited daily bank withdrawals. As a result, the Greek economy entered an overall increase in credit and debit spending. This heightened Greek spending between 2001 and 2007, and money began to trickle back into the Greek economy. However, just when the country’s finances seemed to be getting back on the right track, Greece hosted the Olympic games in 2004. Unfortunately, this cost the country 9 billion Euros, which their economy could not support, forcing them back into debt. As a result, Greece was forced to borrow money from more stable economies, leading to a rising budget deficit of 6.1% and a debt to GDP ratio of 110.6%. In only 23 years, Greece’s debt to GDP ratio rose by 295%.  

The global financial crisis hit in 2007, dragging Greece even further down their never-ending hole of debt. In 2010, after multiple governments in Greece borrowed more than the country’s capacity, international investors refused to finance the Greek government any longer. They sold their Greek bonds to distance themselves from Greek turmoil. In 2011, Greece’s economy shrunk by 9.1%. In the decade following, multiple bailout plans have been enacted on Greece; however, they have yet to have had any major effect on the state of the Greek debt crisis.  

Essentially, what started as a political ploy for office has turned into one of the most devastating debt crises in history. European authorities and private investors have loaned almost 320 billion Euros to Greece since 2010, only 41.6 billion of which have been paid off. Greece is expected to still be paying its debts back past 2060. While minor improvements have been made to middle and lower-class lives, it simply is not enough. Dimopoulos told CNBC, “we love our city, we love our weather, we love the Greek people, but we are scared and afraid in a way, because the situation is not that good.” The situation is not good at all. Young Greeks continue to leave the country, while older Greeks are left to salvage their lives within the Mediterranean nation. The situation is grim, and there does not seem to be a foreseeable end to the turmoil. 

Photo from Shutterstock.

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