The Greek Economy: Examining the Current Situation & the Potential for Growth

Pictured from left to right: Konstantine Kosmidis, Maria Theodorou, Spiros Tsakos, and Professor Harris Mylonas

Blog post by: Konstantine Kosmidis

On Tuesday March 31st, I had the honor to attend a seminar hosted by the International Affairs Society (IAS) that invited Maria Theodorou, Deputy Chief of Mission at the Greek Embassy, to speak to members of the IAS. She spoke about various topics pertaining to Greece including: the sovereign debt crisis, the humanitarian issues that Greece faces, as well as Greek-American relations.

Ms. Theodorou began the seminar by giving an overview of Greece. The Hellenic Republic, which is the formal name of Greece, is a small country located on the Balkan Peninsula in Southeastern Europe and has a population of 11 million. Greece is a parliamentary republic that is currently run by the newly elected leftist party known as SYRIZA and led by current Prime Minister Alexis Tsipras. Moreover, Greece is heavily involved in various international organizations including the European Union (EU), North Atlantic Treaty Organization, the United Nations, World Trade Organization, etc.

After highlighting these various aspects of Greece, Ms. Theodorou proceeded to speak about the economic crisis in Greece in great detail. The economic issues plaguing Greece first began in 2008 during the financial crisis when it began having trouble paying back its loans, but it wasn’t until a few years later when the economic problems escalated to become a sovereign debt crisis that affected the rest of Europe. Ms. Theodorou made a point to say that the economic crisis in Greece wasn’t only a Greek problem, but also a European problem due to the use of a common currency by many other European nations. She then went on to note that in 2010, Greece began asking European partners and institutions such as the European Central Bank, the EU Commission, and the International Monetary Fund for loans to help cover its expenses and repay previous loans. The country received these loans, but they came with obligations; Greece had to enact reforms and austerity measures by cutting salaries, welfare and social security benefits, as well as increasing taxes.

These austerity measures had catastrophic effects. Ms. Theodorou noted that in the years following the implementation of these reforms, Greece’s unemployment skyrocketed, especially for the youth. The official unemployment rate in Greece is 26% while the youth unemployment rate is about 60%. Moreover, Greece’s GDP decreased by 26% while wages were slashed by 33%. She then went on to emphasize that in a period of four years, the Greek economy and society were obliged to face huge consequences and that this situation is something that no other country could sustain without having some sort of turbulence in their society.

In terms of solutions to this conflict, Ms. Theodorou stated that Greece was trying to remedy the economic issues by tackling the humanitarian crisis that it faces by supporting the most vulnerable groups of society as well as tackling corruption and tax evasion. She emphasized that tax evasion has been a chronic problem in Greece because many have found loopholes and utilized them to their advantage, which has left the nation with massive deficits and unable to pay for health services, education, social programs. Furthermore, the new Greek government has rejected the continuation of loans linked with austerity measures and instead has offered its own reforms, which have been targeted at combating the humanitarian crisis, tax evasion, and corruption, in exchange for short-term loans. She ended her discussion on this topic by urging that Greece should cooperate with all the members of the Eurozone to find a solution to this issue since the peripheral nations of Europe, such as Portugal, Spain, and Ireland, have also been affected by the economic crisis.

Recently, negotiations between Greece and Germany, the nation leading the recovery process for Greece and other European nations plagued by the crisis, for more loans have been relatively tense yet diplomatic and cooperative since both countries desire to quell this economic issue and ensure that Greece remains in the Eurozone. Despite these talks, many skeptics believe that Greece might default on its loans and exit the Eurozone, which could be detrimental to Greece’s economy as well as for the rest of Europe. After her speech, an audience member asked whether or not a Grexit, the term used to describe Greece exiting the Eurozone, was possible, she responded that it was not an option for anyone. She stated that over 80% of Greek citizens do not want a Greek exit and Angela Merkel, the chancellor of Germany, has been vocal about maintaining Greece’s status in the Eurozone.

Looking forward, I think the new Greek government has done an adequate job in dealing with the economic crisis as it has been active in presenting new reforms to its Eurozone partners to deal with the domestic issues previously mentioned. This will help the country revive its economy and improve its national revenue, which it can use to refinance social programs that it previously cut. These new reforms were approved by the Eurozone, which enabled Greece to secure a four-month loan, which is to be repaid by this summer. While not a major win for Greece or its creditors, this step is one of many small steps to come that will not only revive the economy of Greece but it will also revive the lenders’ confidence of Greece’s economy.

In order to maximize the utility of these loans, I believe that Greece should begin allocating some of these loans towards investment and growth so that it can help revive its domestic economy. At the same time, Germany and other countries leading this recovery process, should eliminate any future austerity measures and instead focus on growing Greece’s economy by providing cheaper loans to the nation. However, these loans shouldn’t be similar to those prior to the financial crisis where countries were able to borrow large sums at cheap rates. Instead, they should come with contingencies in which the borrowing nations, such as Greece have to provide monthly updates as to where the money is being allocated and the progress of any investment projects that are financed by these loans. In doing so, there can be transparency between the lenders and borrowers, which can help ensure that the weaker economies of Europe like Greece thrive while also preventing another sovereign debt crisis. If Greece begins investing in infrastructure and other areas to grow its economy, while the rest of Europe shifts its focus away from austerity and towards investment and growth, Greece along with the other weaker peripheral nations will be able to grow their economies and remain in the Eurozone.

The Globe Staff

Author: The Globe Staff