A look back as Greece readies for important bailout vote
Costly debt decline years in making
ATHENS, Greece — With the crucial austerity referendum a day away, Greeks contemplated Saturday how their vote will shape their future and the impact a “yes” or “no” will have on the country’s youth.
Opinion polls showed Greeks split on whether to accept creditors’ proposals for more austerity in exchange for rescue loans or defiantly reject the deal and send the message that they’re simply fed up with years of harsh economic austerity.
Greece’s high-stakes standoff with lenders saw the country default on debts last week, close banks to avoid their collapse, and lose access to 7.2 billion euros after an existing bailout deal expired.
Yet, Greek Prime Minister Alexis Tsipras insists a “no” vote will strengthen his hand to negotiate a third bailout with better terms.
No matter the referendum result, Tsipras faces a tough road ahead, fraught with uncertainty about whether he will be able to deliver an improved bailout agreement.
A “yes” win won’t mean a road to the negotiating table strewn with roses either, but would likely usher in a new government with a shot at negotiating an improved deal, said Yale University political science professor Stathis Kalyvas.
He said if the European Union wants to keep Greece in the eurozone, it will have to come up with “a very generous plan” since the cost of the crisis has shot up to unanticipated levels.
After two bailouts totaling $266 billion and six years of austerity, how did it come to this?
The credit binge: Greece engaged in a three-decadeslong credit binge starting in the early 1980s, spending the money on plush government jobs for supporters of the country’s two major political parties — the centerleft PASOK and center-right New Democracy. Taking turns in office, they paid their followers well. They also looked the other way on widespread tax evasion.
The euro: Despite its rickety finances, Greece shaped up a little for a few years and qualified to join the single currency in 2001. But the arrival of the euro fueled the debt binge. German and French banks found they could now buy Greek government bonds in euros, not drachmas that might devalue. Greece borrowed at what in retrospect were ridiculously low interest rates. They were in the euro, the thinking went, what could go wrong?
Bailout austerity: Greece got a 110 billion euro bailout in 2010 from the other eurozone countries and the International Monetary Fund. The creditors attached tough conditions to cut spending and deficits and to tackle the unchecked bureaucracy and corruption. Yet the cuts quickly undermined growth.
Taxpayers on the hook: By 2012, it was clear the first bailout wasn’t doing the trick. A second rescue included sticking Greece’s private creditors with losses on their bonds, along with yet more loans. But creditors continued to underestimate how much damage austerity would do to growth. The debt level continued to increase.
So close: The last bailout money, some 7.2 billion euros, had slipped out of Greece’s grasp.
And with it, perhaps, its chance of remaining in the eurozone.