Greece – Small Country with Huge Debt Part I
Greece has in recent years been strongly visible in the international media picture. Several parliamentary elections, political extremism and diplomatic problems in relation to the rest of Europe as well as an overwhelming influx of refugees have placed the country there. Beneath all the problems lies a looming large government debt, which exacerbates the many other problems in Greece. As of 1 January 2016, the Greek government debt amounts to as much as 363 billion euros – twice as much as the country’s gross domestic product (GDP). If Greece used absolutely all of the value created in the country to repay the debt, the country would not be debt-free – even after two years.
- How big is the Greek government debt?
- How has the Greek state incurred so much debt?
- Is the debt due only to Greeks who have lived beyond their means?
- What opportunities does Greece have?
2: Debt – a problem also abroad
Living under such conditions is problematic – very problematic. Those to whom Greece owes money (the creditors), fear having so much money outstanding. No one thinks it is possible to repay this debt in full. As the recently resigned Minister of Finance Yanis Varoufakis said recently: “If you owe the bank £ 100, you have a problem. But if you owe a million, the bank has the problem. ” This is partly also the case in the relationship between Greece and the countries that own Greek debt. In other words, Greek debt is also a problem for creditors abroad .
After dramatic political negotiations in the summer of 2015, the six-month-old government led by Prime Minister Alexis Tsipras (Syriza) agreed to sign a new loan agreement with the country’s creditors. Greece had had similar negotiations with the so-called Troika (see Facts) in several rounds after 2009.
The signature in 2015 was a prerequisite for continuing to be part of the euro community as the other euro countries saw it. Tsipras, who had gone to the polls with promises to “tear up the loan agreement”, has since had to endure strong criticism and ridicule from several quarters.
3: Solid internal challenges
For the Greeks themselves, the enormous debt has contributed to both economic, political, and social challenges . Economically , large cuts in pensions, the number of public positions and investments, have brought many families and individuals into poverty . Politically , wing parties on the left and right have advanced sharply, as a result of the population’s disappointment over the mismanagement of the established center parties (the main culprits for the original borrowings). This has led to social unrest and desperation, including with an unusual number of suicides.
According to top-medical-schools.org, the debt and its many effects have also created a deep social frustration among people, which is expressed in the fact that many (especially among the younger ones) have stopped believing in a future for themselves in Greece . Several have traveled abroad, not least younger people with higher education. In addition, dissatisfaction has arisen across generations. The young people blame their parents and grandparents for having deprived them of their future prospects by electing politicians to power who have not been able to govern the country responsibly. A sky-high unemployment rate only exacerbates melancholy.
4: Why large borrowings?
How could Greece end up in this debt crisis? The answer is complex . In an apt summary in NRK, Ola Storeng (Aftenposten) explained “The Greek tragedy” with “a deformed currency, inflicted on a misgoverned state”. In other words, part of the problem is that the euro lacks security mechanisms to deal with irresponsible fiscal policies in individual Member States. The single currency does not deprive member states of the opportunity to govern their own national economy, but the consequences of bad policy affect everyone.
At the same time, it is difficult to make large money transfers between member countries in order to even out differences in price, value creation and competitiveness , as is possible within countries with their own national currency. The other side of the problem has to do with internal conditions in Greece : that it can be said to have been a “mismanaged state”.
The euro was originally intended to contribute to increased economic integration in the EU: price differences between member states were to be evened out, cross-border investment was to be simplified, the EU’s global competitiveness was to be strengthened and a strong symbolic marker for a common European identity was to be established. The desire for a common European currency can be traced all the way back to the German top politician Gustav Stresemann’s post in the League of Nations in 1929 – if not even further back. A currency-sharing population is expected to show unity and cooperation.
In addition, many European leaders and economists had a desire to challenge the dominance of the dollar in international markets. The euro was decided to be established in 1992 ( Maastricht Treaty ). Then it was not used until 1999 as a (non-physical) bank currency. Thereafter, banknotes and coins were first introduced on 1 January 2002. When Greece joined in 2001, ordinary Greek consumers were in practice almost as early as other Europeans.