Nestled between Yugoslavia and the Mediterranean Sea, marking the south eastern edge of Europe, Greece always had a fascinating history to draw the world’s attention towards itself. However, today, there’s a new history in the making, a break with the past, a newly emerging political and economic order that has wedged a significant crack on what was until now hailed as “Europe culture.” This break has been a two-fold phenomenon. It began with talks about the introduction of a new currency (literally ditching the ‘Euro’) and ended with an unthinkable near-to-majority democratic victory of a left wing government on the ever-existing rightist soil of Europe.
The place the world economy holds today, from its structure to its nature, have their roots at the last phase of the WW 2, when a band of policy makers gathered to form a new economic order, at Bretton Woods, America to consider on the establishment of an international platform where issues could be solved without taking course to force. The International Monetary Fund was formed under this Bretton Woods System. However, the system in the later years had collapsed, one reason being IMF’s instrument of “Shock Therapy”, which it exercised when a debtor country failed to meet its debt within the stipulated time frame. Although much the system has been re-constructed with time, this particular policy of IMF still prevails with a more polite name ‘Structural Adjustments.’
However, what led to the evolvement of the debt crisis in Greece in the first place? It was nothing but the false, irrational belief that Greece could successfully, independently stabilise herself when struck by the two major bailouts- the first of which was built on a misconception developed between the political leaders and the voters which led to the distortion in relations with her European counterparts; the second revolved around the short-term nature of repayment forwarded in the EC summits. The results were pathetic. On October 2009, Syriza declared that “the overall budget deficit was much larger than stated by the outgoing one.” This led to national panic. There was a leap of the deficit to a 12-13 % of GDP from an earlier 6-8 %. With grave conditions like 115% debt/ GDP ratio, almost negligible growth prospects and the declaration made, the long-run accomplishments of Greece were put to question. Risk of sovereign default arose when crediting agencies started converting the Greek government debt to bond-status, which led to the rapid surge of public bonds, thereby closing all private capital funding coming to Greece.
Subsequently, to remedy Greece out of this worsened up situation, on May 2, 2010, the Troika, comprising of the European Union, European Central Bank and the World Bank, launched the first bailout with a 110 billion euro loan. The deadline for fixing its financial needs was until June 2013. However, as per norms and the loan was characterised and accompanied by the need to impose structural adjustments like, “austerity measures and privatisation of government assets.” Unfortunately, things turned worse with the recession that followed the next year and also the failure on part of the government for timely impositions of the adjustments. This called for the need for a second bailout loan of 130 billion euro, with stricter adjustments like higher interest payment, devaluation of currency and lower interest to credits for private companies holding government bonds. This simply meant Greece owed 240 billion euro to the Troika which was to be repaid by December 2014. However, the recession played bad and the Greece government’s constant incapability to implement proper debt-relief measures further led the World Bank to extend an extra 8.2 billion euro of loans to be transferred during the period from January 2015 until March 2016. It is at this time words about ditching the euro came up.
On the other hand, at the political stand, the radical, left-wing political leader, Alexis Tsipras was targeting to bag favour in the vote-bank politics and therefore went about pledging liberation for Greece from the painful structural reforms (that above all was pressed upon by the German Chancellor, Angela Merkel), while keeping the euro intact, though Spiegel International once read “no one knows how he plans to fulfil his promises.” He impressed on the people that the Europeans were merely bluffing, and he promised that his party “would continue to help, even if the Greeks no longer service their debts.” And finally, like any other contesting candidate, Tsipras led it on thick: “Elect me and all the misery will come to an end.” Consequently, on January 26, 2015 Tsipras was elected with a near majority to hold the Prime-Ministral office. Were the promises all Tsipras had to make to come in power? Just so!
Stavros Lygeros, hailed as a political commentator and a bourgeois intellectual, explained explicitly the Tsipras-phenomenon. Why did the Greeks bring him to power even when his party failed to give a proper explanation of how he plans to pay for future salaries of the government employees? Lygeros in his account mentioned “many Syriza voters didn’t even believe that this party has a solution.” The answer is simple; Tsipras gave hope, however implausible and irrational, when the nation was miserably sinking. “Up until the crisis, Greek politics was governed by an unwritten social contract,” says Lygeros, “which deals with Greece’s economic collapse”. He said that the contract was merely based on a give-and-take policy. The people was frustrated with the politics, they simply left the politicians alone. They complained about nothing, neither waste nor corruption. In return, they were rewarded with two ideologically opposite parties with public sector jobs and new social services. However, the onset of the debt crisis led the contract to collapse. Either side was penny-less. Greece was bankrupt! At the same time the ruling party’s continuous credibility to the Troika and former’s continuous incapacity was enough to incentivise the citizen for opting out for a switch over in power regime. Quoting Lygeros, “a politician doesn’t have to be a demagogic genius to harness the enormous discontent among the population.” Thus, Tsipras had to do very little, he simply self-appointed himself as the saviour.
Did Tsipras keep his promise? Still now, the verdict the nation gives is “we are working on it.” The chance of a ‘Grexit’, which is the Greek withdrawal from the eurozone, and the introduction of ‘Geuro’, still lingers. “I love deadlines; I like the whooshing sound they make as they go by,” wrote Douglas Adams. Taking a cue from that, Mark Gilbert, in the Bloomberg, wrote, “He’d (Douglas) have found plenty to admire in Athens in the past few months, where the whooshing has become deafening.” The debt-crisis is definitely bad news to the Greece creditors. On a whole Greece owes about 847 million dollars to the world today. Kathimerini (Greece daily) read, “To avoid a default, the nation pulled out 650 million of reserves from its account at the IMF. It’s the equivalent of writing a check to oneself to clear ones bank overdraft, and the deadline it sets for Greece may turn out to be the most serious one yet for the nation.” The condition of Greece is pitiable. Without proper and fast recovery measures, the nation is bound to lose its both internal and external sovereignty.
By: Senjuty Bhowmik
- Article: The Political Economy of the Greek Debt Crisis: A Tale of Two Bailouts by Silvia Ardagna and Francesco Caselli