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Everything You Need to Know About the Greek Debt Crisis and Were Afraid to Ask

Hi friends – hope all you had a fantastic weekend! Mine was a bit of a roller coaster: after months of studying I took the GMAT on Saturday (sorry, that’s why the blog’s been a little light the past few weeks) and spent the rest of the weekend celebrating and relaxing. In a nice parallel, the global market is breathing a sigh of relief and doing a celebration dance this morning as well. After months of tension and impending economic doom (aka a “Grexit” – a Greek exit from the Euro) Greece reached a deal with its creditors this morning.

As you might know, Greece had to be bailed out during the recession in 2010 after some serious economic troubles. But this year, the same year Greece’s bailout expired, it elected a left wing government that opposed many of the financial restrictions that came along with the money, called austerity measures. That put a new deal on seriously shaky ground.

Why did this matter to everyone outside of Greece? Well, if Greece couldn’t reach new bailout terms, it would run out of money. Had that happened, Greece would have defaulted on its loans from its European creditors, and would have likely been forced out of the Eurozone. A Greek exit from the Eurozone would have had rippling economic effects (the New York Times has a great explanation here) and all parties were eager to resolve the crisis before it erupted into a full economic meltdown.

It’s been quite the drama ever since, with a confusing array of characters and economic terms. It’s been a little hard to make sense of what’s going on, even for me. So I constructed a simple timeline of every key event that led up to the current Greek debt crisis, what happened today, and what comes next.

2001: Greece gains entry into the Eurozone after having been previously left out when it was formed in 1999.

2004: It came out that Greece fudged a few of the numbers it used to qualify for acceptance. Whoops. At the same time, Greece splashed out a ton of money to host the 2004 Olympics. Not a great combo.

2005: Greece adopted austerity measures to get its budget back on track after splashing out on the Olympics.

2008-9: Things got really bad during the recession – even worse than it did for most other countries. The Greek economy contracted and national debt skyrocketed, up to €262 billion in the fall of 2009. This incited a Greek debt panic, which saw Greek’s bond ratings slashed and cost of borrowing skyrocket. To make matters worse, Greek workers went on strike to protest the government’s cutbacks.

2010: Given Greece’s tumbling markets, it was given €45bn in bailout funds from the Eurozone and the IMF. Problem was, it still wasn’t enough. Standard & Poor downgraded Greece’s credit rating to junk. With Greece’s economy on the verge of collapse, the Eurozone and the IMF agreed to a €110 billion, three year bailout deal.

But the deal came with a catch. In return for the loans, Greece had to make major austerity cuts, including further tax raises and deeper cuts in pensions and public service pay. That’s what set up the drama we’ve been seeing this year.

Jan. 2015: Greece elected the left-wing Prime Minister, Alexis Tsipras and leftist party Syriza. Perhaps getting a little ahead of itself, the country elected the Prime Minister on his platform to lift restrictions and halt privatization plans.

Feb. 16: Greece threw down the gauntlet and flat-out rejected a plan from the EU to extend its current €240 billion bailout. The new finance minister, Yanis Varoufakis, claimed the deal was untenable and called for “blackmail.”

Small issue though: the bailout money was set to expire Feb. 28th. That meant Greece and the EU needed to step up their games – stat. Imagine the countdown clock in 24 starts ticking.

Feb. 20: Despite Greece’s temper tantrum a few days earlier, Greece and its European creditors agreed to a four-month extension on the country’s bailout. But all this did was delay the impending battle over austerity measures as they related to the financing.

Feb-June 2015: Surprise, surprise, nothing was resolved during this four month bail extension. Greece’s government stuck to its guns and continued to oppose austerity measures, and its creditors refused to budge on their insistence on including austerity agreements in a bailout package. Meanwhile, conditions stayed scary in Greece, with unemployment rose near 25% and youth unemployment over 50%.

It was a standoff that led to…

June 28: The Greek government had to temporarily shut down its stock and bond markets and its banks. Residents were given strict ATM withdrawal limits in order to prevent the banks running out of money. Think bank runs during the great depression. The bank controls are still in place today.

June 30: Greece failed to make a loan payment of about 1.5 billion euros, or $1.7 billion, to the IMF. That put essentially put the country in default (although the IMF doesn’t like to use such harsh terms). Suddenly the debt talks took on a whole new urgency, and it looked increasingly likely that Greece would be forced to exit the Euro.

July 5: Greece held a referendum – a country-wide vote – to decide whether it would accept the bailout conditions proposed by the by the European Commission(EC), the International Monetary Fund (IMF) and the European Central Bank (ECB). The bailout conditions (namely, more austerity measures and financial restrictions) were voted down by a majority of voters (61%).

Prime Minister Tsipras thought getting a “no” vote on the referendum would boost his bargaining power in referendums, and allow him to gain bailout money in exchange for less harsh conditions.

(Yes, because my credit card company asks me all the time how much I would actually like to pay on my bill.)

As you might imagine, the referendum was met with eye rolls from the EC/ECB/IMF.

July 13: Greece and its European creditors hammered out the terms of its third bailout deal over the weekend. Though at times it looked like the deal was not going to go through (possibly sending Greece out of the EU), the two parties finally reached a deal this morning.

Unfortunately for Greece, the deal included some harsh financial measures. The new terms called for many economic changes – including higher taxes and pension reforms – that Tsipras will have to push through Parliament quickly.

If he can get the new measures approved in the next few days, the creditors said they would be willing to open negotiations on providing as much as 86 billion euros over the next three years. They’ll also consider proposals to ease Greece’s repayment of the €300 billion it owes them. On top of that, Greece will get a short-term stimulus program of up to €30 billion once the terms are settled.

While there are still terms to be worked out, Greece avoided its almost imminent crisis and a forced exit from the Euro.

As you might imagine, Greece’s people are not too happy with the terms of the bailout and that their referendum was ignored. They’re responding via Twitter with #ThisIsACoup.

I’ve got to be honest, I’m not too sympathetic considering the huge number of comparisons Tweeters are drawing between this deal and Hitler’s Germany (the connection being that most of the deal was run by Germany’s Angela Merkel). #BigDifference.

The Next Few Days: Greece needs to approve the bailout terms internally and finalize the deal with the European creditors.

Phew, well we’ve finally reached today. I tried to keep this as concise as possible, but as you might imagine, there’s a lot going on. Hope this helped! Let me know in the comments if you have any lingering questions.

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