An added problem is that pensioners have become, in many cases, the only source of income in a household. Adding to the economic problem is the exodus of thousands of people from Greece, searching for better living conditions abroad. Maria Hatzi, 24 and currently studying for second masters degree, is contemplating the possibility of moving away after graduation.
I'll come back at some time in the future, I just can't put an exact timeframe. Most Greeks say that the economic reforms that the government has put through — though praised outside of the country — haven't brought any changes to their daily lives.
All the financial help from Europe and the IMF wasn't that substantial to the average person," Hatzi said. Greece is entering a crossroads. On the one hand, economic growth has returned and is set to continue, while the country is due to end its bailout program in August On the other hand, people do not feel their prospects will improve in the short-term and a general election could emerge relatively soon, potentially sparking further turmoil.
At the moment, the conservative New Democracy party is polling about 12 percentage points ahead of Syriza, which has led Greece since New Democracy is hoping for an election at some point in , although Syriza's mandate to govern ends in late The population seems divided as to who will lead the country after the next election, but most people appear fed up with the entire political system. Syriza, which broke a two-party-led system, has disappointed some on the left for implementing austerity measures and the reputation of the mainstream parties remains damaged following what is perceived as years of failed promises.
She added, however, that the rival New Democracy party has so far failed to break free from its bad reputation. In , U. As capital began to dry up, Greece faced a liquidity crisis , forcing the government to seek bailout funding, which they eventually received with staunch conditions. Bailouts from the International Monetary Fund and other European creditors were conditional on Greek budget reforms, specifically, spending cuts and higher tax revenues. These austerity measures created a vicious cycle of recession with unemployment reaching These measures, applied amidst the worst financial crisis since the Great Depression , proved to be one of the largest factors attributing to Greece's economic implosion.
Austerity measures also created a humanitarian crisis: homelessness increased, suicides hit record highs , and public health significantly deteriorated. While Greece had structural issues in the form of corrupt tax evasion practices, Eurozone membership allowed the country to hide from these problems for a time but ultimately created an economic straitjacket and an insurmountable debt crisis evidenced by the country's massive default. International Markets. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.
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Personal Finance. Your Practice. Popular Courses. The financial crisis was largely the result of structural problems that ignored the loss of tax revenues due to systematic tax evasion. Greece's productivity was much less productive than other EU nations making Greek goods and services less competitive and plunging the nation into insurmountable debt during the global financial crisis.
Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. The results are mixed. In , Greece ran a budget surplus of 0.
In , Greece announced its budget deficit would be That scared off investors and raised the cost of future loans. Greece attempted to reassure the EU lenders it was fiscally responsible. Just four months later, Greece instead warned it might default. The EU and the International Monetary Fund provided billion euros in emergency funds in return for austerity measures. The loans only gave Greece enough money to pay interest on its existing debt and keep banks capitalized. The EU had no choice but to stand behind its member by funding a bailout.
Otherwise, it would face the consequences of Greece either leaving the Eurozone or defaulting. Austerity measures required Greece to increase the VAT tax and the corporate tax rate. It had to close tax loopholes. It created an independent tax collector to reduce tax evasion.
It reduced incentives for early retirement. It raised worker contributions to the pension system. At the same time, it reduced wages to lower the cost of goods and boost exports. The measures required Greece to privatize many state-owned businesses such as electricity transmission.
That limited the power of socialist parties and unions. Why was the EU so harsh? EU leaders and bond rating agencies wanted to make sure Greece wouldn't use the new debt to pay off the old. Germany, Poland, Czech Republic, Portugal, Ireland, and Spain had already used austerity measures to strengthen their own economies. Since they were paying for the bailouts, they wanted Greece to follow their examples. Some EU countries like Slovakia and Lithuania refused to ask their taxpayers to dig into their pockets to let Greece off the hook.
These countries had just endured their own austerity measures to avoid bankruptcy with no help from the EU. In , the European Financial Stability Facility added billion euros to the bailout. Despite the name change, that money also came from EU countries. The government successfully sold bonds and balanced the budget. In January , voters elected the Syriza party to fight the hated austerity measures.
On June 30, , Greece missed its scheduled 1. Both sides called it a delay, not an official default. Two days later, the IMF warned that Greece needed 60 billion euros in new aid. It told creditors to take further write-downs on the more than billion euros Greece owed them. On July 5, Greek voters said "no" to austerity measures.
The instability created a run on the banks. Greece sustained extensive economic damage during the two weeks surrounding the vote. Banks closed and restricted ATM withdrawals to 60 euros per day. It threatened the tourism industry at the height of the season, with 14 million tourists visiting the country. The European Central Bank agreed to recapitalize Greek banks with 10 billion euros to 25 billion euros, allowing them to reopen.
Banks imposed a euros weekly limit on withdrawals. That prevented depositors from draining their accounts and worsening the problem. It also helped reduce tax evasion.
People turned to debit and credit cards for purchases. As a result, federal revenue increased by 1 billion euros a year. On July 15, the Greek parliament passed the austerity measures despite the referendum. Otherwise, it would not receive the EU loan of 86 billion euros.
It lengthened the terms, thus reducing net present value. Greece would still owe the same amount. It could just pay it over a longer time period. The United Kingdom demanded the other EU members guarantee its contribution to the bailout. On September 20, Tsipras and the Syriza party won a snap election. It gave them the mandate to continue to press for debt relief in negotiations with the EU. However, they also had to continue with the unpopular reforms promised to the EU.
In November, Greece's four biggest banks privately raised The funds covered bad loans and returned the banks to full functionality. Almost half of the loans banks had on their books were in danger of default. Bank investors contributed this amount in exchange for the 86 billion euros in bailout loans.
The economy contracted 0. In March , the Bank of Greece predicted the economy would return to growth by the summer. It only shrank 0. They were reluctant to call in bad debt, believing that their borrowers would repay once the economy improved.
That tied up funds they could have lent to new ventures. It planned to use the funds to pay interest on its debt. Greece continued with austerity measures. It passed legislation to modernize the pension and income tax systems. It promised to privatize more companies, and sell off nonperforming loans. In May , Tsipras agreed to cut pensions and broaden the tax base. In return, the EU loaned Greece another 86 billion euros.
Greece used it to make more debt payments. Tsipras hoped that his conciliatory tone would help him reduce the But the German government wouldn't concede much before its September presidential elections. In July, Greece was able to issue bonds for the first time since It planned to swap notes issued in the restructuring with the new notes as a move to regain investors' trust.
On January 15, , the Greek parliament agreed on new austerity measures to qualify for the next round of bailouts.
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