Joining Europe

Despite its ongoing economic crises and growing debt, Greece was admitted to the European Commission (a precursor to the European Union) in 1981. In 1985, it was uncovered that Greece had the highest per capita public debt in the world. This realization caused an already struggling economy to take a nosedive due to a loss of international investment confidence and a bleak economic outlook.

Officials signing the documents for the accession of Greece to the European Union in 1979, a process completed in 1981 (left). A graph depicting account balances and imbalances of European countries from 1997 to 2014 (right).

The result of this severe recession was that, once again, Greece was forced to seek foreign loans to maintain and modernize infrastructure. This trend continued when Greece entered the Eurozone in 2001.

In an homage to its heritage, Athens was awarded the 2004 Olympics by the IOC. This news was well received by the Greek people and the international community because money would be funneled into Greece to help improve infrastructure; and so it did.

Celebrations during the 2004 Summer Olympics in Athens, Greece (left and right) and the logo for the games (center).

Before the opening ceremonies, Athens unveiled a new airport, metro system, trolley line, and sports facilities, and much of the city received a facelift. The games brought in millions in revenue through tourism and further solidified Greece as a desirable vacation destination.

This success was superficial. At the close of the games, the Greek government notified the Eurozone that its deficit was much worse than initially anticipated. On top of that, the Greek taxpayer was set to foot an $11 billion bill to cover the cost of the games. After the Olympics, the European Commission placed Greece under fiscal monitoring.

Graffiti in Greece critical of the IMF in 2015.

Greece’s entry into the Eurozone was problematic from the start. Not only did the country fall short of the economic requirements (its deficit was 9 percent above the requirement of 3.9 percent or lower), but wages fell by 22 percent in the years after Greece’s integration into the Eurozone.

The European Commission continued to monitor Greece’s finances, and after the global crisis of 2008, Greece warned the Eurozone that it was on the verge of collapse under a crippling debt load. The severity of the situation was hidden from Eurozone partners because the Greek government falsified data.

Graffiti in Greece in 2015 threatening a Grexit.

The effects of longstanding debt, political misuse of funds, and issues with tax evasion finally caught up with Greece. Tax evasion crossed all social lines as the wealthy hid assets, small business owners manipulated numbers by paying employees under the table, and many Greeks were forced to accept these under-the-table positions while avoiding taxes out of fear of retaliatory measures.

By 2010 the Greek government had no choice but to approach the Eurozone for assistance.

The volatile situation in Greece, and the growing economic woes in other EU countries such as Spain and Italy, stoked fears that a Greek exit from the EU (dubbed “Grexit”) would create a domino effect in the Eurozone and lead to its eventual destruction. This anxiety resulted in the creation of a bailout package to prevent Greece’s demise.

The Economic Adjustment Program, as it was called, proposed 110 billion euros of aid to Greece to ensure the government could cover its necessary expenses and prevent economic collapse. To receive this bailout package, Greece had to reform its tax system, cut unnecessary spending, and reduce pensions.

Prime Minister George Papandreou signed the agreement in May 2010, and the highly publicized deal brought international attention to the Greek debt crisis and sparked global economic fears.

2011 street art in Athens, Greece depicting the country’s financial woes.

Despite governmental reforms, the global recession and concerns in the European banking sector over restructuring Greek debt created more economic problems for Greece. In particular, many feared that the government would not have the money to pay state employees and pensioners.

In turn, this fear of insolvency led to negotiations for a second bailout package from the EU that required austerity measures (slashing of government salaries and reduction of pensions by nearly 40 percent) be put in place to receive installments totaling 240 billion euros. The changes were to be enacted by the end of 2014. The IMF also agreed to provide Greece with another 8 billion euros in loans to be paid from 2015-2016.

2010 May Day demonstrations against austerity measures in Athens (top left and right and bottom left and right). Ruins of the castle of Saint John on the Greek island of Rhodes with "no" graffiti on it representing opposition to austerity measures in 2009 (middle left). An estimated 100,000 people gathered at Syntagma Square Garden in Athens in 2011 to protest the IMF (middle right).

The Eurozone praised the second bailout package as a cure for the debt crisis and economic futures looked promising, with Greece predicting a surplus in 2014. However, as the saying goes, “history repeats itself.” Greece entered another recession at the end of 2014.

The recession and further economic fears caused public unrest and a snap parliamentary election in January 2015. Knowing it was unable to make interest payments under the current terms of the bailout package, the new Greek government began negotiations to prevent a default in June. The European Commission, the European Central Bank, and the IMF—Greece’s creditors—rejected the proposals and would only agree to further negotiations if the Greek government accepted even more austerity measures.

A message on an ATM in 2015 telling customers about the referendum, the closure of banks for one week, and that funds are limited to 60 euros a day (left). A projection on the German Embassy in London in 2015 with the Greek word “no” (right).

Having already implemented twelve tax increases and decreased pensions by 40 percent as part of the first two bailout packages (2010 and 2012), the Greek government feared more public unrest and violent protests. They decided to hold a referendum on 5 July and let the people decide whether to accept the new bailout terms. During the month of June, banks began to close temporarily and limits were placed on cash withdrawals as Greece ultimately defaulted on a 1.7 billion Euro payment to the IMF—the reason I could not withdraw money from that ATM.

The results of the referendum sent shockwaves through the world. In what came as a surprise to people outside of the country—although not to those within it—the Greek people voted against the bailout package, meaning a Eurozone exit was the next step. The results created panic around the world based on fears of a Eurozone collapse and another global recession.

U.S. President Barack Obama speaking in Athens, Greece in 2016 (left). A graphic presented by the Dutch government in 2011 about the European sovereign debt crisis (right).

International leaders began to apply pressure on the Greek prime minister, even prompting a call from U.S. President Barack Obama. Just two weeks after the referendum, the Greek government ignored the public’s decision and began negotiations for a third bailout package. The new bailout carried the same terms that prompted the referendum, and the Greek people prepared themselves for another unwanted wave of tax reforms and spending cuts.

During 2017, the outlook for the Greek economy improved and the GDP was projected to grow by almost 3 percent. However, after introducing terms for a thirteenth austerity package, the debt increased to 250 billion euros. Greece announced that its debt burden was unbearable and it would need to borrow more money to avoid default. The IMF agreed to more rounds of payments if Greece implemented more reforms and pension reductions by June 2018.

The End of the Greek Debt Crisis?

This brings us to today and the recent announcement of a debt resolution.

A poster for a counter summit in 2013 regarding Ireland’s debt burden and referencing the larger European financial crisis.

Under this new resolution, Greek debt will be restructured to allow for more reasonably achievable repayments and loan maturities extended to 2033. A resolution will hopefully prevent a Eurozone exit and provide relief to a country that has an unemployment rate of 20 percent and is experiencing an exodus of recent university graduates who are seeking employment elsewhere in Europe.

While the announcement that a deal was reached originally elicited joy inside Greece, the celebration fizzled out as many Greeks mulled over their past. The history of modern independent Greece leads me to fear that the agreement reached is only a Band-Aid buying a little time. I hope I am wrong, though, for the sake of my Greek friends and family.

Occupy Wall Street Protesters in 2012 supporting Greek resistance to austerity measures (left). A chart showing the impact of austerity measures on the unemployment rate from 2008 to 2012 (right).

As can be gathered from Greece’s complex history, there has been a constant struggle for the country to manage its debts and create a thriving economy since its creation. What emerges is a story that is particular to Greece: a country born into debt and unable to achieve self-sustainability.

Today, instead of financial Band-Aids that remedy only superficially, what Greece needs is more government transparency and a tax overhaul to reform a broken system. If the IMF and Eurozone want to prevent large-scale collapse, then working with Greece to create reform will prove better than throwing more money into the fire.

Graffiti in Athens, Greece from 2015.

There are lessons to learn from the origins of the Greek debt crisis. Overspending, corruption, and a faulty tax system only contribute to the volatility of the economy, lead to civil unrest, and inch us closer to the fiscal cliff. And all it takes is one unforeseen event that disrupts the domestic or global orders to push a teetering economy over the edge into collapse.

With the United States’ growing deficit in today’s global unpredictability, without transparency and safeguards, it might be only a matter of time until it becomes the next Greece.

Read these insightful Origins articles for more on Europe: European DisunionNATO's New OrderThe Migration Crisis in Europe; Northern Ireland’s Incomplete PeaceThe Ukrainian CrisisSocialism in France; and The Greek Civil War, 1946–1949

Listen to these History Talk podcasts on The EU: Past, Present, and Future;  Road to Europe: The 2015 Migration Crisis1989: The Year That Changed It AllThe Fate of CrimeaMemories of the Great War; and Armenians, Turks, and the Genocide Question.