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Five years ago, Greece’s sovereign debt problems nearly brought down the eurozone. In February 2010, the country found itself unable to pay its creditors and was forced to turn to the European Union (EU) and the International Monetary Fund (IMF) for aid. As a euro user, Greece was required under the Maastricht Treaty of 1992 to keep deficits below 3% of its GDP and to keep its public debt below a 60% ceiling. However, Greek political officials concealed the true state of their budget situation with the help of American investment bank Goldman Sachs. This allowed them to join the eurozone and borrow at low interest rates. When the true size of Greece’s debt was revealed, panic swept European markets, especially those of heavily indebted countries such as Portugal, Italy, and Spain. The fear was that if Greece failed to pay its debts that other indebted European countries, all of whom are euro members, would as well. To calm markets, the so-called Troika of the EU, the European Central Bank (ECB), and the IMF stepped in and funneled billions of dollars in loans to the Greek government. This assistance required painful austerity measures, which caused Greece to increase taxes and reduce public spending. The austerity measures have been very unpopular in Greece and two weeks ago, on January 25, the Greek populace elected the far-left SYRIZA Party, which opposes austerity. New Prime Minister Alexis Tsipras has vowed to not follow the conditions imposed by the Troika and is seeking a restructuring of Greece’s external debt. Analysts warn that SYRIZA’s position puts it on a collision course with powerful EU nations such as Germany and that Greece’s recent election might take it out of the eurozone.
This topic brief will explore Greece’s current economic problems, discuss the outcome of the recent Greek election, and how the country’s future debt negotiations may proceed.
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