Articles from Britannica Encyclopedias for elementary and high school students. As a result of low productivity, eroding competitiveness, and rampant tax evasion, the government had to resort to a massive debt binge to keep the party going. OECD. With the benefit of hindsight though, membership has had some negative unintended consequences that can arguably be considered to have contributed to the current crisis—put simply, membership of the Euro plastered over the more deep-rooted and severe economic malaise that the country was experiencing. The increase in interest payments further increased the budget deficit, so there was a risk that Greece would enter a vicious downward spiral of higher debt levels leading to higher interest rates leading to increases in the budget deficit. Eurostat : http://ec.europa.eu/eurostat/search?p_auth=B7jsMVMC&p_p_id=estatsearchportlet_WAR_estatsearchportlet&p_p_lifecycle=1&p_p_state=maximized&p_p_mode=view&_estatsearchportlet_WAR_estatsearchportlet_text=greece&_estatsearchportlet_WAR_estatsearchportlet_sort=_score&_estatsearchportlet_WAR_estatsearchportlet_theme=PER_ECOFIN&_estatsearchportlet_WAR_estatsearchportlet_action=search&_estatsearchportlet_WAR_estatsearchportlet_collection=dataset&_estatsearchportlet_WAR_estatsearchportlet_publicationDate=2016. When the crisis unfolded in 2010 with large budget deficits and debt maturities to be refinanced with more bond issuance, Greek bond yields soared. Greeks protesting against austerity measures required by the European Union–International Monetary Fund bailout of the Greek government, May 9, 2010, Athens. In 2009, after more statistical irregularities that had resulted in an underreporting of public debt were laid bare, Greek debt was downgraded. The Greek government concocted a plan with investment bank Goldman Sachs in early 2002 for government debt issued in yen and US dollars to be swapped for euro debt for a certain time and then converted back into the original currencies at a later date. Making matters worse, in 2004, Greece admitted that it had manipulated some of their economic data in order to be allowed into the union, and reports began to emerge of the extent and means of financial “fudging” that had taken place. Monetary policy was out of sync with a booming economy and easy access to credit. In a statement by Annika Breidthardt, European Commission spokesperson, the European Commission hit back, saying “The European institutions consider that the policies of the ESM program are sound and if fully implemented can return Greece to sustainable growth and can allow Greece to regain market access.”.

Source: European Commission, Eurostat. October 2009: The newly elected Greek government revises its forecast for the 2009 budget deficit to a startling 12.5% of GDP, up from an earlier estimate of 3.7% of GDP. And as can be seen in the chart below, Greece has the highest pension costs in the European Union as a proportion of GDP. 2010. Many of those migrants—whose ultimate destination often was one of the prosperous countries of northern Europe—made Greece the first stop on their journey north through the Balkans by attempting perilous boat crossings from Turkey to one of the Greek islands. “Greece’s Debt Crisis: Overview, Policy, Responses, and Implications,” Congressional Research Service (18 August): https://fas.org/sgp/crs/row/R41167.pdf. In addition, investors expected further convergence to take place between peripheral Eurozone countries (Portugal, Greece, Italy, Spain, Ireland) and the core Eurozone countries (Germany, France, Benelux). As a result of the deepening crisis, talk arose of Greece leaving the Eurozone.

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