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.
THE EUROPEAN UNION
The EU is a unique economic and political partnership between 28 European countries that together cover much of the continent.
The EU was created in the aftermath of the Second World War. The first steps were to foster economic cooperation: the idea being that countries who trade with one another become economically interdependent and so more likely to avoid conflict. The result was the European Economic Community (EEC), created in 1958, and initially increasing economic cooperation between six countries: Belgium, Germany, France, Italy, Luxembourg and the Netherlands. Since then, a huge single market has been created and continues to develop towards its full potential.
From economic to political union
What began as a purely economic union has evolved into an organisation spanning policy areas, from development aid to environment. A name change from the EEC to the European Union (EU) in 1993 reflected this.
The EU is based on the rule of law: everything that it does is founded on treaties, voluntarily and democratically agreed by all member countries. These binding agreements set out the EU’s goals in its many areas of activity.
Mobility, growth, stability and a single currency
The EU has delivered half a century of peace, stability and prosperity, helped raise living standards, and launched a single European currency, the euro.
Thanks to the abolition of border controls between EU countries, people can travel freely throughout most of the continent. And it’s become much easier to live and work abroad in Europe.
The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
Created in 1945, the IMF is governed by and accountable to the 188 countries that make up its near-global membership.
The European Central Bank and the national central banks together constitute the Eurosystem, the central banking system of the euro area. The main objective of the Eurosystem is to maintain price stability: safeguarding the value of the euro.
The European Central Bank is responsible for the prudential supervision of credit institutions located in the euro area and participating non-euro area Member States, within the Single Supervisory Mechanism, which also comprises the national competent authorities. It thereby contributes to the safety and soundness of the banking system and the stability of the financial system within the EU and each participating Member State.
We at the European Central Bank are committed to performing all our tasks effectively. In so doing, we strive for the highest level of integrity, competence, efficiency and accountability. We respect the separation between our monetary policy and supervisory tasks. In performing our tasks we are transparent while fully observing the applicable confidentiality requirements.