How did it happen?
The roots of Greece's
crisis are simple. Before Greece joined the Eurozone, investors treated it as a
middle-income country with poor governance — i.e., a credit risk. After Greece
joined the Eurozone, investors thought that Greece was no longer a credit risk
— they figured, if push came to shove, other Eurozone members like Germany
would bail Greece out. They were wrong.
After Greece joined the
Eurozone, investors began lending to Greece at about the same rates as they
lend to Germany. Faced with this sudden availability of cheap money, Greece
began borrowing like crazy. And then, when it couldn't pay back its debts, Germany
and other Eurozone nations weren't willing to simply bail Greece out.
That led the market to
panic around 2010, and the interest rates on Greek debt spiked. Those high
interest rates make it basically impossible for Greece to borrow, and that
makes it impossible for Greece to pay its debts.
The result:
Greece is insolvent and
the Eurozone isn't as tight a union as the financial markets — and maybe the
Eurozone's member states — believed. That's the crisis.
So what?
Greece's
debt-to-GDP ratio is an insane 172%. It's
much higher than any other country in the Eurozone. Making matters worse is the
fact that the financial markets no longer see Greece as debt-worthy. No one
wants to lend to Greece at reasonable rates, and so Greece can't keep paying to
service its current debts while carrying out basic government functions.
Human crisis?
Greece's problems are often framed as a financial
crisis, or a political crisis. But what they really are is a human crisis.
Unemployment in Greece is over 25% — higher than the United States during the
Great Depression. And high unemployment is leading to political backlash. incomes are plummeting, often to levels not seen
since the 1970s or 1980s. This is one reason the anger in Greek society is so
widespread: no economic group is safe from the crisis.
Economic crisis?
The debt crisis
destroyed Greece's economy, which in turn destroyed Greece's ability to pay
back its creditors or employ its people, which in turn forced Greece to beg the
Eurozone and IMF for help and the austerity measures they demanded destroyed
Greece's economy even more.
Before
the crisis, Greece's population was growing. Since the crisis, it's shrinking.
And it's a good bet that the people leaving Greece are some of the most
economically productive. It means it
will be that much harder for the Greek economy to recover.
What else do we
observe?
Greeks are worried that
Greece is going to leave the Euro, in whole or in part. They worry that Greece
is either going to return to its own currency, or in order to keep paying its
debts, revert to some kind of temporary government scrip. Either way, whatever
replaces euros will be worth a whole lot less than the euro, and so anyone who
can get their money out is doing it as fast as they can. Or, at least, they
were doing it as fast as they can. Greece has shut down its banks and
imposed limits on daily ATM withdrawals in order to end the run.
Crisis for Greece
alone?
A few years ago,
Greece's crisis was the Eurozone's crisis. After all, it wasn't just Greece
sagging under the weight of debts it couldn't obviously pay back; it was Spain,
Portugal, and Italy, to name just a few.
But
no longer.
While
that may be good for the Eurozone, it's bad for Greece, as it reduces their
negotiating leverage. Four years ago, the Eurozone believe that it needed to
save Greece to survive. Now it thinks it can survive a "Grexit" just
fine.
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