Did the EU abandon Greece?

In June 2018, after eight years of crisis, Greece can finally get its head out of the water and see its creditors offer more viable and realistic alternatives for a country that has seen its debt figures rise to dizzying heights. The purpose of this framework note is to provide a very brief summary of the events that led to the Greek crisis as we know it, as well as the various international plans implemented to save the country.

It was in 2001 that Greece officially joined the eurozone at the expense of its former currency, the drachma, thanks to the fulfilment of two of the three criteria imposed by the first pillar of the Maastricht Treaty: a budget deficit below 3% of Gross Domestic Product (GDP) and a controlled inflation rate.[1]

grece

Source: Le Monde

However, in 2004, to everyone’s shock, Greek Finance Minister George Alogoskoufis announced to the European Parliament that the figures presented above had been falsified and that the country did not meet the conditions for adopting the Euro. Greece, which should have been sanctioned according to the then French Treasury Director Jean-Pierre Jouyet, will only receive warnings from its peers.[2] Once again in 2009, Prime Minister Papandreou announced that the figures presented since 2004 had also been falsified and that the Greek debt then amounted to an astronomical 279 billion euros. Thus, in 2009, Papandreou launched the first austerity plan to reduce the country’s deficit, with the main reforms being a 10% reduction in government fees, a freeze on the recruitment of civil servants and the privatization of government land ownership.[3] In 2010, a second austerity plan is announced, a plan that does not reassure international markets, downgrading the country’s rating to the speculative category. Greece is no longer able to borrow money and finds itself without liquidity. Thus, in May 2010, and in view of Greece’s deepening crisis, the Eurozone member countries signed a First International Assistance Plan, agreeing on a loan of 110 billion euros over three years.[4] In 2011, Greece is once again on the verge of default despite the austerity plans put in place. This worsening of the crisis is prompting European countries to sign a second aid plan amounting to 237 billion euros and to cancel half of Greece’s debt to its private creditors. These loans involve heavy charges from Greece, which signs seven different austerity plans between 2010 and 2015. These austerity plans will be the causes of widespread protests by the Greek people, who will organize numerous demonstrations to condemn the efforts they are being asked to make. While the Greek government is heavily under fire from public criticism, the population is also condemning foreign investors and in particular Germany, as evidenced by the gigantic Greek upside-down flag at the Germany-Greece football game at Euro 2012, a highly provocative and politically significant act.

Source : BusinessInsider[5]

Moreover, these austerity plans did not work, as the Greek debt has risen from 140% of GDP in 2010 to 175% of GDP in 2017.

In 2015, Greece is officially in default and closes its banks. The EU members meet and agree on a new economic aid plan amounting to 85 billion euros in return for a new austerity plan, something that the population had refused a short time earlier, but that Prime Minister Alexis Tsipras will sign without much conviction except « to avoid any disaster in the country » and to avoid a possible Grexit.

Since 2018, after eight years of pain and 288.7 billion euros lent[6], the Greek crisis is commonly considered over. Indeed, during lengthy debates, Greece and its creditors reached some compromises: such as delaying the repayment of the debt over 10 more years and postponing the start of maturities over 10 years as well, with Greece having to repay part of the loans from 2032 onwards, unlike the 2022 initially planned. Finally, a new assessment will be made in 2032 to see if further relief measures are needed.

Issues:

– Should the EU reconsider Greece’s place in the Eurozone or even in the European Union itself?

– Should Greece have made more efforts by adopting better austerity plans?

– Were the European Union’s international intervention plans to help Greece well thought out and adapted to the situation in question?

– Does Greece emerge from this experience with great success and have it drawn the necessary conclusions?

– In the event of a new collective bankruptcy, could we see further withdrawals from the European Union of countries that no longer want to see their economic health scratched by bad students, such as Brexit?

[1] https://www.lemonde.fr/europe/video/2015/09/23/comprendre-la-crise-grecque-en-cinq-etapes_4768598_3214.html

[2] https://www.lemonde.fr/europe/article/2010/02/19/la-grece-au-bal-des-hypocrites_1308476_3214.html

[3] https://www.lemonde.fr/les-decodeurs/article/2015/06/30/crise-grecque-8-plans-d-austerite-depuis-2009-4-gouvernements-2-plans-d-aide_4664337_4355770.html

[4] https://www.latribune.fr/actualites/economie/international/20100429trib000503964/grece-une-aide-de-110-milliards-d-euros-en-echange-de-grands-sacrifices.html

[5] https://www.businessinsider.com/greece-germany-euro-2012-upside-down-flag-2012-6?IR=T

[6] https://www.capital.fr/economie-politique/cinq-chiffres-cles-de-la-crise-grecque-1303643