How We Got Here: Chronicling the Debt Crisis in Greece

Joel Anderson  |

been in the news of late. Again. Actually, at this point, it’s probably more meaningful to identify the periods in the last four years that Greece wasn’t in the news. For being the cradle of European civilization, the Greeks sure seem to be having a lot of trouble pulling it together in this day and age.

The most recent news follows the election of new Prime Minister Alexis Tsipras, the leader of the left-wing SYRIZA party. Decided that Greece had had just about enough of austerity measures being crammed down its throat, Tsipras is refusing an extension of the bailout package unless he gets concession on reducing austerity. The rest of Europe, meanwhile, is not interested in having terms dictated to them by a country that would have been insolvent if not for the €200 billion already shelled out.

The result is our current stand-off. Now, Germany has rejected an H-hour proposal for a six-month extension that would give all parties involved more time to maneuver and work out a new long-term deal.

So why has the Greek economy been all tragedy mask and no comedy mask for so long? Given how long this has stretched out, it may be worth taking the time to look back at the timeline for this entire crisis. This was a very long, very complicated path, so we’ll just focus on the highlights.

2000-2007: A Golden Era That Shall Never End!

For some time, Greece was among the fastest-growing economies in Europe, averaging GDP growth of 4.2% from 2000 to 2007. Foreign capital flowed into the country; times were good. Only, the Greek government continued running pretty huge deficits, something indicative of a trend that could be traced all the way back to 1981. From 1993 on, Greece’s debt never fell below 94% of GDP.

But hey, times were good! Who cares? Just keep increasing public spending and don’t worry about the endemic tax evasion in the country. As long as the economy keeps chugging along, they could afford to run big deficits.

Except, as some of you may remember, times rather suddenly became not good. The Great Recession hit in 2007 and Greece’s three main economic drivers; shipping, tourism, and cheap credit from Europe; were all among those sectors most susceptible to the economic slowdown.

2009: It’s All Greek Debt to Me


George Papandreou is elected Prime Minister in parliamentary elections.


Papandreou takes office. The mounting debt, though, has resulted in a series of downgrades from Standard & Poors (MHFI) , Moodys (MCO) , and Fitch. I can only imagine how thrilled the Greek people were that the very agencies who’s rubber-stamping of toxic mortgage assets in America largely led to the recession had discovered a newfound passion for identifying potentially risky assets. That said, debt levels at 150% of GDP and deficits at 6-8% of GDP speak for themselves.

Greece needed new debt in order to pay for all of its old debt, but the concerns about the old debt meant it was getting really expensive to get new debt. Higher interest rates on new bonds meant needing to borrow even more at higher and higher rates, feeding on itself.

It became known as a “death spiral,” and it meant Greece was on a collision course with default.

2010: Wait, That WASN’T All the Greek Debt?!


So, it was already clear early in 2010 that the situation for Greece was really, really dire. Except that it was actually a lot worse than anyone even realized. In February of 2010, it was revealed that Greece, with the help of Goldman Sachs (GS) , had been using swaps and derivatives to hide a lot of its debt. Again, the debt Greece had that everyone knew about was already causing a panic, so this was really not great news.

Remember earlier when I said that Greece was running deficits that were 6-8% of GDP? Turns out that wasn’t true. Greece revealed that the actual figure for the deficit in 2009 was actually 12.7% of GDP (and then would revise it upward again to 13.6% in a few months).

February 9

Greek parliament passes its first austerity package, hoping to get things under control. It primarily addresses government employees, freezing salaries, slashing bonuses, and cutting overtime.

March 5

After no one seemed very impressed with the first austerity package, the Greek parliament passes a second in hopes that they can right the ship and avoid bankruptcy. This time, there was an across-the-board 7% cut to government salaries, more cuts to bonuses, and a series of new taxes.

April 23

Papandreou officially requests a bailout loan, reaching out to the rest of Europe. The rest of Europe, moored to Greece’s fate by the Euro, has to listen.

April 27

Standard & Poors cuts the rating on Greek bonds to BB+, “junk” status. The use of the phrase “junk” in describing securitized debt indicates pretty much everything it seems like it should.

May 2

The Euro Zone countries and the International Monetary Fund (IMF) approve a €110 billion loan for Greece in exchange for major concessions from the Greek government.

May 4

Papandreou submits the Third Austerity Package. This one’s a doozy. There’s too much there to list in detail, but suffice to say the government’s gravy train was stopped, dismantled, and sold for parts. The package sparks massive protests across Greece.

2011: Merry Christmas. Hope You Like More Austerity.

May 29

The second half of 2010 and first half of 2011 saw a slow building of the dire situation. Rating agencies kept issuing downgrades, Greece kept cutting its spending, and the Greek people continued to express extreme dissatisfaction.

Those protests reached a fever pitch on May 29, when a series of peaceful pan-European demonstrations were planned. Once again, 100,000 people gathered outside of the Parliament Building in Athens.

June 28-29

June sees the introduction of the Fourth Austerity Package. In hopes of preventing a vote on the package, Greek unions begin a 48-hour strike on the 28th, including protests that ultimately turn violent. Parliament passes the fourth austerity package on June 29 anyway, but only by five votes.

July 21

For all of the massive cuts and tax hikes, things had only gotten worse for Greece. The economy, already in the tank, has only been further crippled by austerity. By July, yields on 10-year bonds have stayed north of 10% for over a year.

So, on July 21, the leaders of the 17 Euro countries approve a preliminary plan for a second bailout of €100 billion. For the first time, it includes plans to force holders of Greek bonds to take a “haircut” (accepting less than full payment) as well as a new, lower interest rate, something about as popular with them as austerity is with the Greek people.

October 26

The whole world watches as the European Union summit becomes an all-out effort to hammer out a compromise. An all-night negotiation ends with an agreement on a 50% haircut for Greek bonds (essentially forgiving €100 billion in debt) as well as a new interest rate of 3.5% and, you guessed it, more austerity benchmarks.

November 1

Papandreou, upon the revelation that he’s about to have to go back to his people with their fifth painful austerity package in two years, announces that he’s going to hold a referendum on the new agreement. It’s a chance for parliament to vote on the agreement and provide Papandreou with political cover.

This is NOT a popular decision with the rest of Europe. Of COURSE the Greek people aren’t going to like it, but that doesn’t mean they don’t have to accept it. By this point, Spain and Italy are teetering on the brink of a similar collapse due to a credit crisis that has spread well beyond Greece. Europe NEEDS this deal.

November 3

Under intense pressure from other European powers, Papandreou folds and calls off the referendum.

 November 5

Papandreou goes ahead with a confidence vote for his government. He wins, narrowly, but it’s close enough that opposition leader Antonis Samaras calls for new elections.

Papandreou meets with Samaras and, by agreeing to step down, manages to secure support for the second bailout package.

November 10

Papandreou resigns so that Lucas Papademos, an economist and former Vice President of the European Central Bank (ECB), can take over.

2012: The Year of the Troika

February 12

Parliament passes the austerity measures necessary to secure the second bailout loan. Violent protests break out across Greece. Some 500,000 Greeks gather in Athens.

February 21

Three organizations; the European Commission, the IMF, and the ECB; come together to form what’s called the “Troika” to back the bailout package and cover all Greek financial needs through the end of 2014. A final marathon session secures final terms for the haircut on Greek debt as well as another €130 billion loan.

May 6

Elections are held in which the New Democracy party wins but reduces its rates. No party has a clear majority, so another election is scheduled for…

June 17

New Democracy wins 29.7% of the vote. Negotiations over the next four days ultimately results in a governing coalition with Alexis Samaras as the new Prime Minister.

October 31

Parliament approves Austerity 6: Electric Boogaloo. More cuts to government spending and civil service jobs, more new taxes, more anger from the Greek people.

2013: We’re Fine. No, Really, Everything’s Good.

July 17

Parliament approves Austerity 7: Spending Was Too Fast, Too Furious for Too Long. More cuts, more taxes, more angry Greeks. Apparently the only thing more repetitive than Hollywood is Greek politics.

2014: Who Needs a President?

May 25

Elections are held for Greece’s delegation to the European Parliament. In an election seen as a referendum on Samaras’ government, the Coalition of the Far Left, or SYRIZA, wins.

This is particularly important because talk of a third bailout is now underway. New projections see a budget shortfall of €5.6 billion for 2014 and €12.3 billion for 2015 and a leaked report from the Troika suggests that a new bailout package of €50 billion may be necessary to carry Greece through 2020.

December 8

Presidential elections are announced. The President, a largely ceremonial role in Greece, is elected by Parliament for a five-year term. There are three votes held, and a 200-member majority is required to elect a President on the first two ballots. That threshold falls to 180 votes for the third.

But, if that third ballot fails to elect a new President, the Greek constitution calls for Parliament to schedule snap elections for a new Parliament.

December 29

Guess what? All three votes failed to produce the necessary super majorities and parliamentary elections are scheduled for January 25.

2015: Still With Me? Almost Done. At Least, We Can Hope...

January 25

Parliamentary elections are a big success for SYRIZA. The new Prime Minister, the aforementioned Alexis Tsipras, wins his position running on staunch opposition to austerity measures and the bailouts. The Greek people finally have the leader they want who will stand up to the Troika, even if it means risking default.

Which Brings Us To…

This week. Tsipras has started playing hardball, insisting that he won’t accept “blackmail.” The current bailout package expires on February 28, and Greece will run out of cash and default without a new deal on an extension. And really, it’s Friday that an agreement has to be reached by, given that other national bodies would need to approve any deal.

Tsipras and his Finance Minister, economist Yanis Varoufakis, seem intent on securing a better deal by playing chicken with the deadline. However, for the Troika, having terms dictated by the country who’s decades of disregard for fiscal responsibility are why they’re all in this mess seems more than a little ridiculous. Germany, meanwhile, rejected a plan for a six-month extension on Thursday, surprising some. The terms included an extension of the loan as well as more freedom for Greece to roll back austerity measure. Angela Merkel was not amused

All of this, though, is taking place with the backdrop of the mutually assured destruction that comes with failure.

A Long, Long, LONG Trial for Greece

It’s clearly been a long, exhausting process (I can say that researching and writing this piece certainly was) that still isn’t at an end. That said, imagine being Greek. It’s easy to view the current government as being reckless and/or crazy, but it’s been four solid years of turmoil, protests, and a really, really terrible economy. They’re fed up and they have reason to be, even if their nation’s lack of responsible budgeting is the root cause of the issue.

We all may have a little Greece fatigue at this point. It’s been the same basic story with slight variations since 2009. However, that doesn’t mean it’s gotten any less important. Without a deal, things could get ugly in a hurry and create ripples that we’ll absolutely feel here in America.

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