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Greece

Debt statistics 2016

Overall international debt burden (% of GDP)133
Government payments on foreign debt (% of revenue)21.5
Government foreign debt (% of GDP)205
Private foreign debt (% of GDP)64
IMF and World Bank debt cancellation ($ billions)0
Country case studiesYes

Country case study

The Greek government was lent large amounts from foreign banks in the 1990s and 2000s in order to buy exports from countries such as Germany. This fuelled an economic boom, though did nothing to reduce unemployment. The global financial crisis increased the loans as the Greek government had to cope with a fall in revenues and rise in spending, whilst foreign banks looked to lend to governments as a supposed safe haven. By 2010, Greece could not afford to pay its debts, but rather than defaulting – which would have caused further problems for foreign banks – the EU and IMF gave bailout loans. These have effectively paid off much of the reckless lenders, whilst leaving Greece even more indebted. Austerity and huge debt payments have crashed the economy, with unemployment and poverty exploding.

As with many countries in Africa and Latin America, the Greek government’s large debt was initially created during the oil price spikes on the 1970s. In the 1980s the economy stagnated with an unemployment rate of over 7 per cent.

From the mid-1990s the economy began to boom as large amounts were lent from European banks for Greece to buy imports from countries in the core such as Germany. This process intensified with the adoption of the Euro in 2001. However, despite the high economic growth, unemployment remained high.

Unlike other European crisis in countries, in Greece the main borrower was the government. Government foreign-owed debt was already a very high 75 per cent of GDP in 2003, the year figures were first recorded. It continued growing to over 90 per cent of GDP by 2007.

Banks in countries such as Germany were lending the Greek government the money for Greece to buy exports from other European countries. One key area of expenditure was the military.  Between 2000 and 2007, Greece’s government military spending was 3 per cent of GDP (almost 8 per cent of government revenue), the highest amount for any European country, though not as high as the US.[1] Large borrowing was also undertaken to fund the Athens Olympic games in 2004, with costs continually increasing on initially stated estimates.

Between 1990 and 2011 the three largest suppliers of arms to the Greek government were companies from the United States ($17 billion), Germany ($8 billion) and France ($3 billion).[2] Furthermore, up to eight arms deals signed by the Greek government since the late 1990s are being investigated by judicial authorities for possible illegal bribes and kickbacks to state officials and politicians.[3]

The Greek government hid the true amount of its debt in various ways. In one infamous case, in 2002 the US bank Goldman Sachs created specific derivatives to keep debt off the books and hidden from the Greek people and EU rules.[4]

When the global financial crisis began in 2008, lending to Greece increased to help the country cope with the impact of lower tax revenues and the need for higher government spending. Foreign banks were particularly keen to lend to governments such as Greece, because governments were now seen as safe compared to their fellow banks. By the start of 2010, French banks had lent the Greek government and banks $53.5 billion, German banks $36.8 billion and British banks $12 billion.[5]

In the Spring of 2010, lenders began to finally lose confidence in the ability of the Greek government to pay its debts. The interest rate at which the Greek government could borrow shot-up. The government admitted that it could no longer afford to make debt payments, but rather than defaulting, it took bailout loans from the IMF and EU. These new loans were used to pay-off the reckless banks, whilst keeping and increasing the Greek debt. By early 2013, the EU and IMF had lent $290 billion amounting to 65 per cent of the Greek government’s foreign-owed debt.

The IMF and EU loans included major austerity measures and other economic changes, such as widespread privatisation. The economy has continued to crash, falling by more than 20 per cent since 2007. One-in-four people are unemployed, with one-in-two young people out of work. By 2012, the economy was 12 per cent smaller than the IMF and EU said it would be at the start of the bailout and austerity programme, and unemployment was 25 per cent rather than 15 per cent.[6]

In 2011 the IMF, EU and lenders accepted that the debt was too big, and negotiations began between the Greek government and private lenders to reduce the amount of debt they were owed. A deal was finally reached in March 2012, which reduced the amount of debt owed to private creditors by around 75 per cent.

However, this did not cover any of the debt owed to the IMF and EU. It treated Greek and foreign creditors the same, making big cuts to Greek pension funds and banks, necessitating more bailouts and thereby more debt for the Greek government. And the deal still meant that lenders got back more money than if they had sold their debt on the market. Overall, Greek government foreign owed debt actually shot-up in 2012 as the government took on more bailout loans to in turn bailout Greek banks, to have a guaranteed pot of money with which to keep paying the remaining private debt, and because the economy kept crashing.

Furthermore, over the previous couple of years, vulture funds had bought up Greek debt at cheap prices from lenders who feared a default. They specifically targeted debt issued under British and Swiss law, rather than Greek. Whilst the Greek government made all holders of Greek-law bonds comply with the write-down, they were powerless to do the same for the British and Swiss law bonds. The vulture funds have continued to be paid in full, making extortionate profits on debt they bought cheaply. In addition, those bondholders who did write-down the amount they were owed insisted that the new bonds are issued under British law, giving them more powers to sue Greece if the government does default in the future.

In Greece today, 11 per cent of the population are classed as living in ‘extreme material deprivation’ – otherwise known as extreme poverty. This includes not being able to afford a decent diet, sufficient heating or electricity or to meet emergency expenses. The Church of Greece now distributes 250,000 daily rations of food, with unknown numbers of rations from local councils and NGOs. There has been a rising incidence of children fainting in school due to low calorie intake. One-in-four people are unemployed, with one-in-two young people out of work.

There has been widespread resistance to the destruction of Greek society in the name of debt. Thousands of people mobilised around a citizens debt audit, exposing the countless ways banks and the governments had created the crisis. Strikes and protests have been continually held. In 2012, Syrzia came second in parliamentary elections, standing on a platform of holding an official debt audit and renegotiating the size of the debt, despite threats from other EU countries if Greeks voted for the party. Instead, a coalition of former ruling parties was formed, and the crisis in Greece has intensified.

Just as in Latin America and Africa in the 1980s and 1990s, Greek livelihoods and lives are being destroyed in the name of paying off debts to reckless lenders.


[1] World Bank. World Development Indicators database.

[2] Figures from Slijper, F. (2013). Guns, debt and corruption. Military spending and the EU crisis. http://www.tni.org/sites/www.tni.org/files/download/eu_milspending_crisis.pdf but converted from 1990 constant dollars to 2010 constant dollars.

[3] Slijper, F. (2013). Guns, debt and corruption. Military spending and the EU crisis. http://www.tni.org/sites/www.tni.org/files/download/eu_milspending_crisis.pdf

[6] IMF and EU original predictions from http://www.imf.org/external/pubs/ft/scr/2010/cr10110.pdf

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