RYOT has put together this handy point form guide to help you make sense of one of the most important stories this year. It\u2019s not a comprehensive guide and certainly not without controversy, but it\u2019s a start in understanding this mess. It will be updated as the situation unfolds.<\/p>\n
Here goes:<\/p>\n
1.<\/strong>\u00a0Greece\u2019s acute financial woes started in 2009 as the ripple effects of the U.S. subprime mortgage exposed the weaknesses of vulnerable countries\u00a0around the world.<\/p>\n 2.<\/strong>\u00a0Investors were spooked by highly indebted countries like Greece, which had a debt-to-GDP ratio of 146 percent in 2010. That essentially meant that Greece owed a lot more than it produced every year and had no hope in hell of paying that back. That number has increased to 176 percent today. In comparison the U.S. is at just over 100 percent.<\/p>\n 3.\u00a0<\/b>Greece also had massive budget deficits, far higher than the EU allows, despite being allowed to join the euro in 2000, in what now seems like a totally asinine decision based more on politics, rather than solid economics.<\/p>\n 4.<\/b> Why this happened is hard to explain but here are three big reasons: a) Greece has a corrupt political culture that cooked books, that used government hiring to win votes and that failed to create a modern industrial economy b) Greeks (particularly wealthy ones) didn\u2019t pay taxes, especially in election years when candidates and governments looked the other way c) The euro flooded Greece with cheap credit,\u00a0meaning that Greeks (and more terrifyingly, their government) could now borrow at the same rates as penny-pinching Germans. The European Union didn\u2019t really consider what would happen with the toxic mix of cheap credit and profligate, corrupt government.<\/p>\n 5.<\/b> Back to our story. Ratings agencies, also spooked, downgraded the status of Greek government debt to \u2018junk\u2019 status, meaning that investors who bought the debt hoping for a nice return one day didn\u2019t have much hope in recouping their money. Junk status is like having a low credit rating. Try getting a credit card or a mortgage in that situation!<\/p>\n 6.<\/b> This lack of confidence essentially cut Greece off from borrowing from abroad. Without access to international markets the country was really screwed. This meant that the government couldn\u2019t pay things like wages, pensions or anything else for that matter, as it relied on borrowing to take care of these expenses.<\/p>\n 7.<\/strong>\u00a0In May 2010, after many people thought Greece would have to default,\u00a0the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF), nicknamed \u2018the Troika\u2019, stepped in with much needed loans, which we call the \u2018bailout\u2019.<\/p>\n 8.<\/b> The problem is that this \u2018bailout\u2019 (more like a loan) came with strings, or what we now call \u201causterity\u201d. Things like savage cuts to wages and pensions, a very large increase in taxes and major economic reforms like privatizing major industries were demanded. Austerity has been hotly debated, with many, including many in the U.S. government believing that it\u2019s just a bad policy. If you recall, the U.S. reaction to the financial crisis was a massive stimulus to spur growth. American commentators and government officials have been highly critical of austerity.<\/p>\n 9.<\/b> Greece didn\u2019t really have much of a choice but to accept, although some people think that they could have been tougher in negotiating the deal.<\/p>\n 10.<\/b> From 2010 to 2014 there have been three bailouts, including a massive \u2018haircut\u2019 to holders of Greek debt who were asked to take just over 50 percent less on the value of their investment. That latter move is considered to have been the largest sovereign restructuring in history at about $140 billion. Things could have been different in here somewhere. Some argue that Greece could have stuck better to reforms and changed their economy for the better. Others say that at this point most Greek debt should have been written off given that a Greek default will see creditors lose even more money anyway.<\/p>\n 11.\u00a0<\/b>After the economy contracted by approximately one quarter and unemployment reached 25 percent, Greece slowly began to reach government surpluses again in 2014 and access to international borrowing markets was once again opened.<\/p>\n 12.<\/b> That didn\u2019t last long. Most Greeks were still suffering, their salaries cut, business way down and pensions sliced in half. The unhappiness saw the rise of more extremist parties on both the right and left.<\/p>\n 13.<\/b> On the left, Syriza won a major election victory in January 2015, promising to renegotiate the bailout deal terms with international creditors. Well, that\u2019s a nice idea but they didn\u2019t really check with the creditors themselves, nor with the European Union. None of them were having it and many suspect that Syriza knew that.<\/p>\n 14.<\/b> Syriza spent months trying to get better terms but to no avail. Blame for the failure was widespread and remains complicated. Let\u2019s just say that European creditors have no tolerance for making things easier for Greece who they see as not fulfilling their end of the bargain with reforms, while Syriza\u2019s leadership did itself no favor by demanding Nazi-era reparations from Germany, among other undiplomatic gestures.<\/p>\n 15.\u00a0<\/b>This is why you kept hearing about Greece \u2018on the brink\u2019. Each time Greece would have to pay another instalment on the multi-billion dollar credit card, it needed more money from the European Union and the IMF, both of whom didn\u2019t want to hand it over without a promise of reforms. Both sides muddled along from crisis to crisis, making eleventh hour compromises. If you want to know more about who exactly Greece owes money to check here.<\/p>\n 16.\u00a0<\/b>Now we\u2019ve reached a turning point. Greece owes the IMF 1.5 billion euros on Tuesday June 30, among numerous other upcoming payments to treasury bill holders, the European Central Bank, and the European Investment Bank. Basically, each repayment sees Greece begging for more cash from other creditors. It\u2019s a bad situation.<\/p>\n 17.<\/b> Greece needed more money from creditors to make the payment. Creditors demanded more reforms. This time, the Greek government under Alexis Tsipras balked and cut their meeting short. In a surprise move, he called a referendum on the bailout package to be held next weekend. He also asked for an extension on the IMF payment. That was duly rejected.<\/p>\n 18.<\/b>\u00a0By Wednesday July 1, Greece was in arrears with the IMF (the first European country ever to do so) but there is speculation that Greece could capitulate on some demands.<\/strong><\/p>\n Both Germany and Greece have denied any new bailout agreement.\u00a0German Finance Minister Wolfgang Schaeuble dismissed\u00a0suggestions that renegotiation was possible before the referendum. The Financial Times reported that the Tsipras government was willing to concede some points on a new bailout before the referendum. The FT said it obtained a letter that only insisted in maintaining certain tax exemptions for islands and allowing the retirement age increase to 67 begin in October not immediately.<\/p>\n 19.<\/strong>\u00a0Fearing instability Greeks have been draining their euros out of their bank accounts in the billions and either hoarding the money or holding it in foreign bank accounts. Many Greeks I know living abroad have helped their parents bring money from Greece to hold them in places like Switzerland.<\/p>\n 20.<\/strong>\u00a0The referendum, if it occurs (there could be a last second deal or it could be abruptly cancelled), is considered by some a vote on whether to stay in the euro or not. The leftist Tsipras government is playing an insanely risky game. The three outcomes are a Greek default and a potential \u2018Grexit\u2019 if a \u2018no\u2019 vote is reached, a massive defeat for his government if a \u2018yes\u2019 vote is reached, or a last minute capitulation by the EU or Greece itself. The latter option seems like the most sane course at this point.<\/p>\n 21.<\/b>\u00a0Greek banks have been closed this week\u00a0fearing the loss of billions in deposits and a collapse in the Greek banking system as people pull out their money. Consumers are buying up groceries and gas stations have reported running out of fuel. Friends in the country have reported an air of panic but no violence as of yet.<\/p>\n 22.<\/b> Greeks themselves are mostly mixed on how they\u2019d vote in the referendum but there is certainly fear for the future. Many are in disbelief that things have gone this far. Despite Tsipras urging Greeks to vote \u2018no\u2019, my prediction is that if the vote goes ahead Greeks will vote yes for more austerity. The desire to be part of Europe seems to trump any pain in remaining a member. Think about it this way a friend told me, if Greece left the euro, prices for goods would skyrocket and buying coffee \u2018becomes like buying caviar.\u2019 No Greek would tolerate an increase in coffee prices.<\/p>\n <\/p>\n Source: RYOT<\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Admit it, you hear about a crisis in Greece all the time but don\u2019t know much more than the basics. You understand that Greece owes money and that it can\u2019t pay it back. You\u2019ve heard that Greece has been negotiating its future for about five years now to no end but could you speak intelligently […]<\/p>\n","protected":false},"author":27,"featured_media":130693,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[2],"tags":[8],"yoast_head":"\n![\"Greek](\"http:\/\/d3819ii77zvwic.cloudfront.net\/wp-content\/uploads\/2015\/06\/papandreou-1024x681.jpg\")
<\/div>\n![\"tsipras\"](\"http:\/\/d3819ii77zvwic.cloudfront.net\/wp-content\/uploads\/2015\/06\/tsipras-1024x644.jpg\")
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