How crisis and bailouts changed Greek economy
Greece’s exit from its bailout on Monday is a symbolic move past the debt crisis that exploded eight years ago and transformed the country’s economy and the lives of its people.
At the time of the May 2010 aid package — the first of three — politicians from euro-area creditor countries argued the crisis was the result of chronic fiscal and economic indiscipline.
To justify breaching a “no bailout clause,” loans were tied to strict conditions covering everything from government spending to public administration and justice. So how has Greece performed?
Economic hit
While Greece’s crash rippled far beyond the borders of the country of just 11 million people, the effect at home was particularly dramatic.
Economic output fell by a quarter and living standards collapsed after the loss of more than a million jobs pushed unemployment at one point to 28 per cent.
Public finances
The Greek leg of the global financial crisis was sparked when George Papandreou’s government revealed the country had misled the world about its finances and the 2009 budget deficit had swelled to more than 15 per cent of gross domestic product, five times the EU limit.
In recent years, the debate on Greek finances has turned more to the amount of public debt and the fiscal balance excluding the costs of servicing that debt. That’s meant less attention on the fact that for two years now, revenue has exceeded spending and the government has run an overall surplus.
Public administration
On the spending side, Greece’s fiscal problems were partly caused by an explosion of public-sector jobs in the years before the crash. A refusal to fire workers became an early flash point between the government and the bailout providers. Those arguments dissipated after Greece shrunk the public payroll by 150,000 jobs by only hiring one person for every five departures and not renewing temporary contracts.
Competitiveness
Over the last eight years, a constant refrain from euro-area nations and the IMF was that Greece needs more structural reforms to make it more competitive. Over three bailouts, it’s sold state assets, made sweeping changes to the power market and changed regulations covering everything from lawyers to hairdressers.
Financial sector
The banks were rendered insolvent for a while after the 2012 debt restructuring wiped out the value of their bond portfolios, and three years later they were shuttered for weeks before reopening with capital controls in place. They’re still dealing with the fallout, saddled with soured loans amounting to almost 50 percent of their book.