In a word: difficult.
Greece is suffocating under the weight of an unfathomably large national debt. The austerity measures put into place by Europe have caused chaos and Athens remains at logger-heads with economic super-power, Germany, as to the best way to handle the crisis.
Grexit looms on the horizon, sending the rest of the Eurozone into a tail-spin.
How did this happen?
Greece – like a lot of us – was already in recession thanks to the 2008 downturn. Though the crisis really stepped up late in 2009. Every country has debts, but it is the amount of debt as a percentage of the country’s national income (or GDP) that indicates the affordability of its debit. At the end of 2009 Greece’s debt as a share of national income was 127%; by 2010 this figure had risen to 146%.
This is when the powers that be in Brussels stepped in, and the European Central Bank et al funded an emergency bailout.
Initially, the International Money Fund approved a loan of €110bn. This was the biggest bailout in history but it was insufficient to keep Greece afloat and a reassessment in 2012 released a further €130bn.
This phased €240bn loan, plus the renegotiation of loans from Greece’s private sector creditors has left the country €323bn in debt. This new arrangement actually shaved €40bn off Greece’s arrears, but the figures are still utterly enormous.
Sadly this was only the beginning of the Greek people’s woes. The European Union sanctioned strict austerity measures as a condition of the bailout. These included reducing the minimum wage, a freeze on public sector salaries, increased VAT and pension cuts. The Greek economy was crippled and a desperate population took to the streets in angry protest.
Cue political mayhem and an early general election won (unsurprisingly) by the anti-austerity party, Syriza.
David and Goliath
This brings us to the present day and newly elected Prime Minister Alex Tsipras’s hard fought negotiations with the European Union this week.
Tsipras’s election winning mandate promised to release the austerity strangle hold on Greece and have at least part of the country’s massive debt written off. But the Prime Minister faces strong opposition from Germany, Europe’s largest economy and Greece’s biggest creditor. German Chancellor, Angela Merkel, has ruled out debt cancellation and the European heavy weight insists the painful austerity measures enforced are the only route to economic recovery in Greece.
It’s a fierce stand-off, what Greece lacks in economy the new leadership makes up for in personality. Syria’s charismatic Finance Minister, Yanis Varoufakis, took a rock-star style tour of European capitals last week trying to drum up support for the Greek cause ahead of these negotiations with the EU.
Varoufakis is a new style of cabinet minister, leather jacket clad and motorbike riding. In his passionate defiance of Germany, Varoufakis is even throwing the N-word around. Telling a press conference following meetings with his German counterpart, Wolfgang Schäuble, “Germany must and can be proud that Nazism has been eradicated here, but it’s one of history’s most cruel ironies that Nazism is rearing its ugly head in Greece, a country which put up such a fine struggle against it.” This is a cultural, as well as economic, clash of wills.
So what happens next?
Well negotiations rumble on in hopes of reaching a compromise. But if this doesn’t happen it could mean that Greece leaves the Eurozone, and this is making economists twitchy.
Greece is not the only country currently in the unhappy grips of an economic downturn; and anti-austerity political parties are on the rise across Europe. A similar backlash from voters in countries like Spain and Portugal risks a much bigger break-up of the Eurozone and the value of the currency plummeting amidst the political instability.
Former head of the US Central Bank, Alan Greenspan, has commented along these lines. Greenspan told the BBC, “I don’t think it will be resolved without Greece leaving the Eurozone… The problem is that there is no way that I can conceive of the euro continuing, unless and until all the members of the Eurozone become politically integrated – actually even just fiscally integrated won’t do it.” So could one European super party really be the future?
The jury is still out on this one, and while we wait for word from Brussels, all we can be sure of is that this week’s decisions are sure to affect all of us.
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