Greece – Small Country with Huge Debt Part III

Greece – Small Country with Huge Debt Part III

7: Unresolved issues

This is how the situation has been more or less until today. Domestically, however, the crisis has cost Greece six governments and prime ministers ; two of them incarcerated temporarily pending election. Political extremism has grown in line with rising unemployment, and the economy – value creation – has fallen to 75 per cent of the 2009 level. Unemployment has risen to 25 percent. Among the young, it is even higher; every second person under the age of 25 who does not study is without a job.

Debt, on the other hand, is rising steadily; it is largely “repaid” with new loans. The payments of these have been co-administered by the Troika . This has become a favorite object of hatred for many Greeks.

The troika has, in turn, maintained the course that other euro countries, led by Germany, have wanted and demanded. It has only repaid loans on condition that the Greek state implements extensive savings, cuts and administrative restructuring (as new routines in tax collection).

In part, the Troika has been anxious to set a precedent – for other debt-laden eurozone countries to demand the same easing in their loan terms, if Greece is to be given simpler terms or have parts of the debt written off. In addition, the EU leadership has been anxious to provoke other member states and the people there. From there, dissatisfaction has been expressed with “picking up the nightclub bill for the Greeks” – that is, what they believe has been living far beyond their means in Greece. The irritation was directed at generous welfare schemes in Greece, in addition to costly individual projects such as the 2004 Athens Olympics.

Economically, Greece is on a better course today. The state budget deficit is reduced to zero when payment of borrowing interest is excluded. And the inefficient state apparatus has been severely cut, following orders from the Troika. However, this does not mean that the country is on the road to imminent improvement for its inhabitants. The sharp cuts the country has had to make in order to remain in the euro area have damaged the economy more than they have brought it back on its feet. Investment has failed, and the Greek real estate and labor markets are stagnant. The Greek employment pattern has the highest proportion of self-employed people in the EU – one in three Greeks of working age. Such occupational groups are particularly vulnerable during periods of economic downturn, as they live off small economic units with little equity as a buffer against bad times.

8: Still a solution?

Some Greeks – and some foreigners – believe that Greece’s debt crisis can only be solved by declaring maturity on all loans and leaving the eurozone – a so-called ” Grexit “. The idea is that Greece can then refrain from repaying loans and that the country can devalue (write down) the value of its new national currency so much that foreign companies and investors will invest new capital in the country.

However, this plan does not guarantee that the debt will actually be written off, and it does not provide an answer on how Greece will be able to finance the import of industrial goods, energy, and medicines – goods and services that the country does not produce itself. After incumbent Prime Minister Alexis Tsipras signed a new loan agreement in the summer of 2015, there is also no strong political initiative for Grexit today.

Today’s savings rate also does not seem to represent a solution. There are very few economists who believe that Greece will be able to repay the entire debt and at the same time be able to maintain a minimum of a welfare state. Perhaps the solution to the Greek situation is not economic either. The euro was as much a product of political (one Europe) as economic considerations.

Thus, it is just as likely that there will be political considerations at European level that can help the Greeks. According to, a balance must be struck between the credibility of the euro and Greek sovereignty. A possible cancellation of the Greek debt will send an unfortunate signal to all other member states with high debt. At the same time, persistent and strict austerity requirements make the Greeks feel dictated from the outside. To avoid both, the repayment claims must be made manageable and over a long period of time. It must be possible for Greek governments to implement the policies they go to the polls on, without deleting the debt as such.

Is there reason to believe that the EU will be able to offer the Greeks such special treatment? In any case, it has happened before in history and ultimately always for the same reason: a country’s strategic location. Today, Greece forms a large part of Europe’s outer border to the south and southeast with dominance over shipping lanes to Turkey, Russia and the Middle East. The recent influx of refugees and migrants to Europe comes mainly via Greece. That is why there is a lot to do for the whole of Europe, not least the euro countries, to gain control of the influx soon. Exactly how this can be done is neither clear nor much discussed at the moment. But the EU does not benefit from having an important external border country in economic ruin when neighboring regions are struggling with conflict, civil war and terror and a refugee influx of any size must be handled.


Who is the Troika?

The troika is a wooden team consisting of:

  • The International Monetary Fund(IMF)
  • The EU Commission representing the EU
  • European Central Bank(ECB)

The Troika is negotiating with the Greek government on the terms of any new loans to Greece.

Euro cooperation and convergence criteria (also called the Growth and Stability Pact)

To ensure that members align their economic policies with each other – necessary to implement Economic and Monetary Union (EMU) – EU countries have established some convergence criteria . These must be met by the Member States in order to adopt the euro.

  • Low inflation
  • Low government budget deficit: Maximum 3% of gross domestic product (GDP)
  • Low government debt. Maximum 60% of GDP

As of January 2016, 19 of the 28 EU countries also participate in euro co-operation (the United Kingdom, Denmark and Sweden are excluded). The countries that have joined after 2003 have transitional arrangements until they adopt the euro. The 19 euro countries have a total population of 339 million.

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