The Euro Crisis in Greece
Jennifer Kaufman, The Eurasia Center/EBC, December 2012
The use of the Euro officially commenced on January 1, 1999. Greece, however, did not adopt the currency until 2001. In late 2009, there was increasing worry about the debts of some of the members of the EU, precipitated in part by the Dubai sovereign debt crisis. It was not until after the concern arose that Greece announced its massive debt of 300 billion Euros. Although the Eurozone limit was that debt could not exceed 60% of GDP, Greece’s debt was 113% of the country’s GDP. In January 2010 thequestion arose as to whether Greece would have to leave the Euro. However, the European Central Bank revealed that this would not be the case. In February, as the world became increasingly aware of the crisis that Greece was facing, alarm grew about the significant debt in Portugal, Ireland, and Spain. At the same time, in an attempt to control the debt, Greece made public a plan of austerity methods. Such measures included enormous reductions in spending and increased taxes. In response to this plan, strikes and riots in the streets of Greece began on February 11th. Even as the euro declined against the pound and the dollar, Greek Prime Minister George Papandreou, whose Socialist party had won the election in 2009, firmly maintained that Greece did not require a bailout.
After much deliberation, the next monththe Eurozone members and the International Monetary Fund decided that they would assist Greece with a bailout of 110 billion euros. In November 2010 the Irish Republic also received a bailout. Although less than Greece, the Irish Republic still collected 85 billion euros. After realizing the severity of the financial situation in Europe, the finance ministers of the Eurozone created a 500 billion euro fund – the European Stability Mechanism. This was to be permanent, in case any other countries needed assistance. The fund would prove useful just a few months later when Portugal requiredaid with its debt.
In order for Greece to receive the second portion of its loan in June 2011, the country had to enforce newausterity regulations. After the Greek government approved such rules, Greece received the bailout. There was speculation, however, that Greece would have to depart from the euro. [1]
The next year, in February 2012, in response to pressure from international leaders and desire to receive more monetary aid, Greece enacted another austerity measure. Many Greek citizens did not support this action. Protests erupted again and have continued since. One such protest in October was by young Greeks. They threw chunks of marble, bottles, and petrol bombs at the police who were attempting to control the demonstration. There was also a general strike in which workers, to demonstrate their unhappiness with the new austerity measures under consideration, left their places of employment. In an attempt to retain their currency and avoid bankruptcy, the regulations would be worth 13.5 billion euros or $17.7 billion. In late September of this year there was another similar strike. This one, however, resulted in more severe conflict between demonstrators and law enforcement. The effects of the strikes were quite extensive. Because air traffic controllers stopped working for a three-hour period, flights were grounded and cancelled. Ferries stayed in ports so people were unable to get to and from the islands. Taxi drivers participated in the strike, making it difficult for those who needed to get around Athens, as well as in and out of the city. In addition to the lack of public transportation, other public services were not offered and schools, hospitals and ships were not open.[2]
Over the past three years, anti-austerity protests like the one above have been a common occurrence in Greece. The citizens have been very upset over proven false public finance figures and the crisis they have caused. Many people no longer have confidence in the government. Greece is now experiencing a massive recession comparable to the Great Depression in the United States.
The Eurozone crisis not only plunge countries into debt, itaffected the unemployment rate, which was the highest it had ever been. The European Commission also forecasted 0.3% reduction in the economy throughout the year 2012 before retail sales surprisingly grew shortly after.[3]
It is difficult to understand the extent of the effects of the crisis from outside the country. However, even though the austerity measures have made the recession worse, they are still a necessity. Greece would be unable to receive the aid that it requires to survive without the government reducing spending and increasing taxes. Although the citizens are unhappy with these actions, they will not remain in place forever. They are relatively short-term solutions to build the Greek economy up and get it back on track. Also, if Greece did not enact austerity measures and as a result did not receive a bailout, the country may have had to leave the Euro. This departure would in turn force Greece to restructure its economy and cause far greater disruption in the country’s economy. Greece would lose the advantages that accompany its membership in the European Union.
As of late, news on the crisis is mixed. On the one hand, Mario Draghi, head of the European Central Bank, forecasted that toward the end of 2013, the euro zone economy would begin to rebound. However, official data indicated that unemployment in the European Union is still at a record high and the jobless rate continues to rise.[4] At this point, the world will have to wait and see, but should prepare in case additional measures become necessary.
[1] “Timeline: The Unfolding Euro Zone Crisis,” BBC News, June 13, 2012
[2] “Violence Breaks Out at Greek Anti-Austerity Demo,” Yahoo Finance, Oct. 18, 2012
[3] “Timeline: The Unfolding Euro Zone Crisis,” BBC News, June 13, 2012
[4] “Unemployment in Euro Zone Rises to a New High,” New York Times, Nov. 30, 2012