After 10 years of overspending, the 2008 global financial crisis saw Greece in no way prepared for the economic downturn.
In 2010, Greece became the first European Union (EU) country to send a distress signal, as a consequence of living beyond their means. Since 2010, Greece has struggled on an agreement with its lenders that will allow their economy to recover from the blow.
Greece has been the EU’s main recipient of financial investment aid, after a long period of this assistance the funds began to run dry. Regardless, Athens kept on spending.
With the decision to join the euro in 2001, the new adopted currency maintained low borrowing costs, making it easy to secure funds from commercial banks with extremely low interest rates. This increased the country’s dependence on cheap loans in order to close the spending gap. During the decade prior to the GFC, public wages had doubled and departmental spending had skyrocketed. Alongside the spending of €4.6 billion on defence costs to ward off the antagonism with Turkey, 2.1% of GDP in comparative to a 1.6% EU national average. The government and the country’s foremost businesses had borrowed enormously on international money markets.
The cry for help in 2010 saw assistance from the IMF (International Monetary Fund), the EU and the ECB (European Central Bank). The IMF insisted on a reduction to wages but the endurance of the defence costs remained, having soldiers experience a salary drop of 40%.
According to calculations, official lenders are owed €242.8 billion, with Germany as Greece’s largest creditor. At a desperate attempt to recover financially, this year Greece elected Syriza to change script on negotiations with Europe. The Greeks have sent their government to Brussels in order to seal the country a better deal that wouldn’t comprise austerity policies involving pension, wage and public sector job cuts. Syriza was requested to cut €400 million from the country’s defence costs. In a refusal, Syriza claimed the most it could cut is €200 million. The country is now suffering soaring unemployment with slashed wages and pensions.
Creditors have been demanding that Greece make some reforms and cuts before the negotiation of €7.2 billion in new loans, to pay old ones with the IMF and other countries would be granted. The past few months has seen fear of this extent of the crisis with Greece’s banks surviving off European Central Banks emergency credit. With a €60 daily cap on ATM withdrawals throughout the country for quite some time, machines have now run dry seeing all banks shut until July 7 to avoid financial panic, due to the European Central Bank capping the emergency funds that were keeping the banks running.
The next step had the people of Greece take to a vote on whether to accept the terms of a rescue package by Europe which encompasses further cuts to wage and pensions, imposing steep tax rises. If the referendum resulted in a ‘yes’ vote, the Syriza government would have effectively lost power and the country would have quickly gone back to the polls to elect a new government.
The population are sick of austerity, with sky rocketing unemployment, wage and pension cuts and public bodies starved of funds, the referendum resulted with a ‘No’ vote in favour of the Greek people.
Greece has chosen to roll the dice on its future rather than experience further financial austerity. The referendum resulted in 62 per cent of the poll voting no to the rescue package, despite a multi-million euro TV campaign for ‘yes’.
This makes it very unlikely that Banks throughout Greece will reopen as planned on Tuesday.
Prime Minister Alexis Tsipras, addressed the nation stating “Greece has written a great page in European history.”
“Democracy cannot be blackmailed, a people with faith and dignity can do anything.”
Finance Minister Yanis Varoufakis said “this no is a big yes to democratic Europe. With that ‘no’ we can go tomorrow to renegotiate, it is time for the European Central Bank to start treating the wounds of Greece – and of itself.”
European Council President Donald Tusk has called a Euro Summit to be held on Tuesday night to discuss the next move from the referendum.
The vote for ‘yes’ was eluded by fears it meant Greece would depart the Euro, sinking the country into a financial disaster that could last for many years. With faith and loyalty in the Syriza government, plans are being made to return to the European negotiating tables.