The Troika – Why the bad guys ?

Why is the Troika of rescuers now seen as the bad guys in the Greek Debt Crisis?

The Troika of lenders came to the rescue of Greece, the EU, ECB & the IMF approving bailout packages of loans to Greece in 2009 and 2010. This came to around 110 Billion Euro.

The Greek economy was one of the fastest growing in the Eurozone from 2000 to 2007: during this period it grew at an annual rate of 4.2%, as foreign capital flooded the country.Despite that, the country continued to record high budget deficits each year.

Financial statistics reveal solid budget surpluses existed in 1960–73 for the Greek general government, but since then only budget deficits were recorded. In 1974–80 the general government had an era with moderate and acceptable budget deficits (below 3% of GDP). This was followed by a long period with very high and unsustainable budget deficits in 1981–2013 (above 3% of GDP).

According to an editorial published by the Greek conservative newspaper Kathimerini, large public deficits were indeed one of the features that marked the Greek social model since the restoration of democracy in 1974. After the removal of the right-wing military junta, the government wanted to bring disenfranchised left-leaning portions of the population into the economic mainstream. In order to do so, successive Greek governments have, among other things, customarily run large deficits to finance enormous military expenditure, public sector jobs, pensions and other social benefits. Greece is, as a percentage of GDP, the second-biggest defense spender among the 27 NATO countries after the United States, according to NATO statistics. The US is the major supplier of Greek arms, with the Americans supplying 42 per cent of its arms, Germany supplying 22.7 per cent, and France 12.5 per cent of Greece’s arms purchases.

The long period with high yearly budget deficits caused a situation where, from 1993, the debt-to-GDP ratio was always found to be above 94%. In the turmoil of the global financial crisis the situation became unsustainable (causing the capital markets to freeze in April 2010), as the downturn had caused the debt level rapidly to grow above the maximum sustainable level for Greece (defined by IMF economists to be 120%). According to “The Economic Adjustment Programme for Greece” published by the EU Commission in October 2011, the debt level was even expected further to worsen into a highly unsustainable level of 198% in 2012, if the proposed debt restructure agreement was not implemented.

Prior to the introduction of the euro, currency devaluation had helped to finance Greek government borrowing; after the euro’s introduction in January 2001, however, the devaluation tool disappeared. Throughout the next 8 years, Greece was however able to continue its high level of borrowing, due to the lower interest rates government bonds in euro could command, in combination with a long series of strong GDP growth rates. Problems however started to occur when the global financial crisis peaked, with negative repercussions hitting all national economies in September 2008. The global financial crisis had a particularly large negative impact on GDP growth rates in Greece. Two of the country’s largest earners are tourism and shipping, and both were badly affected by the downturn, with revenues falling 15% in 2009.


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