page_title: European debt crisis
section_title: Greece
hierarchical_section_title: European debt crisis / Evolution of the crisis / Greece
caption_attribution_description: Deutsch: Creditors of Greece 2011 and 2015 Data source: http://www.wienerzeitung.at/nachrichten/top_news/760529_Griechenlands-Untergang-Europas-Ende.html
context_page_description: The European debt crisis is a multi-year debt crisis that has been taking place in the European Union since the end of 2009. Several eurozone member states were unable to repay or refinance their government debt or to bail out over-indebted banks under their national supervision without the assistance of third parties like other eurozone countries, the European Central Bank, or the International Monetary Fund.
  The eurozone crisis was caused by a balance-of-payments crisis. The crisis was worsened by the inability of states to resort to devaluation. Debt accumulation in some eurozone members was in part due to macroeconomic differences among eurozone member states prior to the adoption of the euro. The European Central Bank adopted an interest rate that incentivized investors in Northern eurozone members to lend to the South, whereas the South was incentivized to borrow. Over time, this led to the accumulation of deficits in the South, primarily by private economic actors. A lack of fiscal policy coordination among eurozone member states contributed to imbalanced capital flows in the eurozone.
context_section_description: The Greek economy had fared well for much of the 20th century, with high growth rates and low public debt. By 2007 (i.e., before the Global Financial Crisis of 2007-2008), it was still one of the fastest growing in the eurozone, with a public debt-to-GDP that did not exceed 104%, but it was associated with a large structural deficit. As the world economy was hit by the financial crisis of 2007–08, Greece was hit especially hard because its main industries—shipping and tourism—were especially sensitive to changes in the business cycle. The government spent heavily to keep the economy functioning and the country's debt increased accordingly.
  The turmoil of the Great Recession lead the budget deficits of several Western nations to reach or exceed 10% of GDP. What was exceptional for Greece, was that the high budget deficit (which, after several corrections, was revealed that it had been allowed to reach 10.2%  and 15.1% of GDP in 2008 and 2009, respectively) was simultaneously coupled with a high public debt to GDP ratio (which, until then, was relatively stable for several years, at just above 100% of GDP - as calculated after all corrections). Thus, the country appeared to lose control of its public debt to GDP ratio, which already reached 127% of GDP in 2009. In addition, being a member of the Eurozone, the country had essentially no autonomous monetary policy flexibility. Finally, a role was played by controversies about Greek statistics (due to the aforementioned revisions), and, possibly, by an effect of media reports. Consequently, Greece was "punished" by the markets which increased borrowing rates, making impossible for the country to finance its debt.
  Despite the drastic upwards revision of the forecast for the 2009 budget deficit in October 2009, Greek borrowing rates initially rose rather slowly. By April 2010 it was apparent that the country was becoming unable to borrow from the markets; on 23 April 2010, the Greek government requested an initial loan of €45 billion from the EU and International Monetary Fund (IMF), to cover its financial needs for the remaining part of 2010. A few days later Standard & Poor's slashed Greece's sovereign debt rating to BB+ or "junk" status amid fears of default, in which case investors were liable to lose 30–50% of their money. Stock markets worldwide and the euro currency declined in response to the downgrade.
  On 1 May 2010, the Greek government announced a series of austerity measures (the Third austerity package within months) to secure a three-year €110 billion loan (First Economic Adjustment Programme). This was met with great anger by some Greeks, leading to massive protests, riots, and social unrest throughout Greece. The Troika, a tripartite committee formed by the European Commission, the European Central Bank and the International Monetary Fund (EC, ECB and IMF), offered Greece a second bailout loan worth €130 billion in October 2011 (Second Economic Adjustment Programme), but with the activation being conditional on implementation of further austerity measures and a debt restructure agreement. Surprisingly, the Greek prime minister George Papandreou first answered that call by announcing a December 2011 referendum on the new bailout plan, but had to back down amidst strong pressure from EU partners, who threatened to withhold an overdue €6 billion loan payment that Greece needed by mid-December. On 10 November 2011, Papandreou resigned following an agreement with the New Democracy party and the Popular Orthodox Rally to appoint non-MP technocrat Lucas Papademos as new prime minister of an interim national union government, with responsibility for implementing the needed austerity measures to pave the way for the second bailout loan.
  All the implemented austerity measures have helped Greece bring down its primary deficit—i.e., fiscal deficit before interest payments—from €24.7bn (10.6% of GDP) in 2009 to just €5.2bn (2.4% of GDP) in 2011, but as a side-effect they also contributed to a worsening of the Greek recession, which began in October 2008 and only became worse
caption: Creditors of Greece 2011 and 2015
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