In fact, one of the prerequisites to be part of Eurozone was that every member country couldn’t have a budget deficit of more than 3% of its GDP. Greece was the 12th nation to join the euro family, but it did not meet this requirement. The country decided to remain quiet and play along.
Greece wasn’t the only Euro member to fudge numbers to be a part of Eurozone. But Greece’s deficits were appalling.
Two years later, 2004 was the year of Greece Olympics – an opportunity for this small nation to shine on the international forum. Afterall, the Olympic torch was coming back to the place where it had originated. The newly formed government which came into power the same year, decided to stay mum even after it discovered that the budget deficits were as high as 8.3 per cent instead of the official figure of 1.3 per cent. In the meantime, Greece was happy to keep getting cheap loans from European nations and private banks to keep the economy running.
Trouble came home during the slowdown and recession that hit the US at the end of 2007. Several European countries were affected but Greece was worst hit because it had no means to deal with the crisis. Earlier, Greece’s one stop solution for any kind of financial anomaly was to print more currency and revive the economy. But this time, it wouldn’t work. The European Central Bank controlled the inflow of Euros. The fast widening gap between revenues and expenditures was making it worse. Thus there was a sharp spike in unemployment in the country.
The prolonged crisis, in 2008, made it difficult for Greece to keep the crumbling economy afloat without international help. In 2009, the ‘Troika’, namely the European Commission, the European Central Bank and the International Monetary Fund stepped in to control the situation.
By 2010, it became clear that Greece needed a full-fledged bailout plan if it were to be back on its own feet. A loan amount of 110 billion-euro was decided upon by the Eurozone. In exchange, the Greek government promised to decrease expenditure and improve revenues in terms of tax collection to bring about a balance in the deficit budget.
With so much aid, the economy did pick up for a while, but things never completely smoothened out. Some of the austerity measures backfired and unemployment levels rose to alarming levels leading to large-scale protests. Several governments changed but the resentment and dissatisfaction among masses only grew.
In 2012, Greece was in need of another massive bailout. By now, the total outstanding loan amounted to 246 billion euros. More austerity measures were suggested and put into practice.
Even then the budget didn’t balance because most of the bailout money went to the banks that lent funds to Greece before the crash.
One of the assessments of the time says that less than 10% of the bailout money was actually left for the government to reform its economy and safeguard weaker members of society.
Thus, after two bailouts, the budget still refused to balance.
Three years after the second bailout, in January 2015, the Greece elected the left-wing government of Alexis Tsipras who came to power on the promise of ending austerity. Tsipras’ popularity rose on the back of increasing dissatisfaction of the masses with the status quo as dictated by the Troika.
Since coming to power six months ago, PM Tsipras and his finance minister, who resigned two days ago, Yanis Varoufakis held stern talks with EU leaders over a number of issues, including pensions, labour market reforms. They hoped that the European leaders would give in to their demands out of fear of losing Greece from the European Union.
In June 2015, the negotiations broke off, and each side dared the other to be the cause of Greece’s exit from the Eurozone.
As a result, Greece defaulted on a repayment to the International Monetary Fund, a sum of $ 1.7 billion.
Since then, the banks started to run out of money. This forced some drastic capital control measures to be introduced. Soon, there was a maximum limit on the amount of money that could be withdrawn. The limit was set to a meagre 60 euros a day.
July 5, 2015, was the day of the referendum in Greece. In the nation-wide vote, 61 per cent of the voters dared the European Union and voted against austerity measures.
After pulling off such a massive win, PM Tsipras is said to resume talks and negotiate a deal with the Eurozone nations.