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In July 2015, Greeks voted in a referendum to reject the country\u2019s international bailout at the urging of their far-left populist government. Prime Minister Alexis Tsipras, who swept to power on a wave of popular revulsion towards the mainstream parties in January 2015, and his divisive finance minister, Yanis Varoufakis, wanted to extract better terms from Greece\u2019s European and IMF creditors. <\/p>\n
Their brinkmanship left the country on the verge of exiting the euro, financial meltdown and economic catastrophe. Yet, within only a few days, Tsipras backtracked and Varoufakis was gone.<\/p>\n
Tsipras\u2019s \u201csomersault\u201d, or kolotoumba<\/em> as the Greeks called it, was a costly gambit that set back the economic recovery and destroyed the government\u2019s credibility with its European partners. But it also marked the beginning of a new era of Greek compliance with bailout requirements and laid the foundations of recovery.\u00a0<\/p>\nIn the 10 years since, Greece has staged a remarkable rebound, exiting its bailout programme, maintaining fiscal discipline and outgrowing richer economies.<\/p>\n
\u201cWe essentially lost 25 per cent of our GDP and we came very close to having to manage a complete societal collapse had we been forced to leave the Eurozone,\u201d says Greek Prime Minister Kyriakos Mitsotakis, who took over from Tsipras after his centre-right New Democracy party won elections in 2019. \u201cBut I think it also is testimony to the resilience of the Greek society and the political system that we have managed to recover.\u201d<\/p>\n
The difficult reforms Greece finally adopted in the wake of the crisis have transformed its fortunes. The brush with catastrophe also profoundly reshaped the Eurozone, spurring it to shore up a fragile single currency with new tools and institutions. <\/p>\nBut there remains work to do. A decade after the crisis peaked, Greece\u2019s per capita GDP is still just 70 per cent of the EU average and its productivity problems remain acute. <\/p>\n
The EU meanwhile still lacks a proper banking union and a budget big enough to cushion economic shocks. Former European Central Bank president Mario Draghi has warned that the bloc risks \u201cslow agony\u201d if it cannot muster up to \u20ac800bn a year in additional investment in innovation and infrastructure, some of it through common EU borrowing.<\/p>\n
\u201cGreece has reformed, but not transformed. Same for the euro area. We can now deal with the known unknowns, but are still too stuck in our little national boxes,\u201d says Thomas Wieser, a former top European official.<\/p>\n
Cut off from markets<\/strong> in 2010 following the global financial crisis, Greece rapidly became the Eurozone\u2019s weakest link. <\/p>\nThe country had structural weaknesses and massively under-reported the level of its public deficit, which in 2009 was more than five times the EU\u2019s 3 per cent limit.\u00a0<\/p>\n
\u201cThe real origin of the crisis in 2009 and 2010 was the cheating on the numbers,\u201d says Marco Buti, a former top official in the European Commission\u2019s economics directorate. \u201cThis led to the moral hazard paradigm that tainted the whole crisis.\u201d<\/p>\n
It meant some parliaments around the EU demanded a \u201cpound of flesh had to be extracted from Greece\u201d, he says.<\/p>\nStudents clash with riot police during a 2010 protest against austerity in Athens. Greece\u2019s first bailout programme, which required large cuts, was shaped more by urgency than precision<\/span> \u00a9 Angelos Tzortzinis\/AFP\/Getty Images<\/span><\/figcaption><\/figure>\nGreece was unable to put its finances in order and needed three international bailouts over eight years to stay afloat, implementing repeated rounds of tough austerity while it was facing political instability and social upheaval.\u00a0<\/p>\n
The path to recovery began with serious mis-steps. Greece\u2019s first bailout programme, hurriedly launched in 2010, was shaped more by urgency than by precision. Modelled loosely on IMF interventions in Latin America and sub-Saharan Africa, it required funding cuts yet failed to consider the constraints on a country inside a monetary union with no independent exchange rate or monetary policy.<\/p>\n
It is now widely acknowledged \u2014 by Greek, European and IMF officials \u2014 to have been fundamentally flawed in design and execution. The first bailout especially \u201cimposed a very tough consolidation, with unrealistic fiscal targets and placed the full burden of adjustment on Greece\u201d, says George Chouliarakis, former deputy finance minister and the government\u2019s chief negotiator under Tsipras.<\/p>\n
The economy cratered, shrinking 26 per cent between 2008 and 2013. Unemployment soared to 28 per cent.<\/p>\n
\u201cWhen it struck us it was so brutal,\u201d says Kostas Kalaitzakis, a partner at ISV, an architecture and real estate development firm in Athens. \u201cWe had no work at all. We came to the office and had nothing to do. It was tragic. The world just stopped.\u201d<\/p>\nBabis Ioannou, ISV\u2019s managing partner, had to lay off 30 of the firm\u2019s 80 staff and to dip into his own bank account to keep it running. \u201cWe didn\u2019t know how things would turn out,\u201d he says. \u201cI was not able to sleep at night. It was a dark period.\u201d<\/p>\n
Growth had returned by the time Syriza party leader Tsipras came to power in 2015, promising to rip apart Greece\u2019s agreement with its creditors. His defiance resonated with tired Greeks who had seen their real income decline for years. With the clock running down on its second rescue, Athens began a stand-off with its creditors that would last seven months.<\/p>\n
Varoufakis and other radicals in Tsipras\u2019s Syriza party believed the danger a Greek exit posed to the rest of the Eurozone gave them leverage to extract fresh money on better terms. Varoufakis quickly lost the confidence of his Eurozone counterparts.\u00a0<\/p>\n
\u201cHe was never in negotiating mode,\u201d says Moscovici, the former EU commissioner. \u201cHe was never in the compromise mode. He was always delivering lessons with a kind of narcissist approach\u2009.\u2009.\u2009.\u2009[He was] a disastrous finance minister.\u201d\u00a0<\/p>\n
Varoufakis and Tsipras declined requests for interviews.\u00a0<\/p>\n
In June 2015, Tsipras called the referendum on Greece\u2019s bailout terms. He knew he needed a popular mandate, one ally says, in order to settle with creditors on a proposal that was so far off from what he had promised.<\/p>\n
\u201cIt would have been very difficult to reach a compromise with a good dose of austerity without a referendum,\u201d says Euclid Tsakalotos who took over from Varoufakis as finance minister in 2015.\u00a0<\/p>\nTsakalotos says the deal, the third bailout, that he and Tsipras eventually agreed with creditors was \u201cundoubtedly better\u201d because the fiscal targets were less exacting.<\/p>\n
Many other Greek and European officials strongly dispute this, saying the Tsipras administration obtained only minor concessions but at enormous cost because their brinkmanship vaporised nascent confidence in the recovery.\u00a0<\/p>\n
Central bank governor Yannis Stournaras has even costed what he describes as \u201cthe so-called Varoufakis negotiation\u201d \u2014 \u20ac85bn in present value terms based on the deterioration of Greece\u2019s forecast debt position by the IMF between late 2014 and mid-2015.<\/p>\n
With Greece defying its creditors and running dangerously low on cash, its banks closed and urgently required fresh recapitalisation. Capital controls were introduced and the economy plunged back into recession. At the same time, a wave of young, educated and highly skilled Greeks were leaving the country in search of a better future abroad.<\/p>\n
Yet in the following four years, Tsipras\u2019s Syriza government faithfully implemented the terms of Greece\u2019s third bailout. It had to \u201coutperform\u201d to convince investors that gloomy predictions from the IMF were wrong, Chouliarakis says. The economy stabilised. Borrowing costs started to fall and Greece returned to the market in 2017.<\/p>\n
After the centre-right<\/strong> came back to power in 2019, modest growth accelerated, propelling the country to a striking fiscal turnaround. Greece is now running a primary surplus of 4.8 per cent, while public debt is declining rapidly \u2014 not only due to inflation, but also thanks to early repayments.\u00a0<\/p>\n\u201cWe\u2019re talking about a different economy now than the one we inherited in 2019 in terms of its fiscal health, in terms of its underlying competitiveness. A lot remains to be done,\u201d says Mitsotakis.<\/p>\n
The New Democracy government has successfully cleared out red tape by digitising parts of the public sector, and curbed tax evasion that was once endemic. It also cleaned up the banking sector and overhauled the Public Power Corporation, a bloated and inefficient state energy company.<\/p>\nAlexis Tsipras, left, then Greek prime minister, talks to European Central Bank chief Mario Draghi in 2015. Tsipras had come to power promising to rip up Greece\u2019s deal with its creditors<\/span> \u00a9 John Thys\/AFP\/Getty Images<\/span><\/figcaption><\/figure>\nFuelled by the EU\u2019s pandemic recovery fund, Greek GDP growth has recently outstripped that of wealthier European countries. Exports as a share of GDP have doubled since 2008.\u00a0<\/p>\n
Athens has spawned a rapidly growing although still small tech sector. Marco Veremis, the founder of Big Pi Ventures and a leading Greek tech investor, says the crisis inflicted pain but also unleashed creative destruction.\u00a0\u201cIf it hadn\u2019t been for the crisis there wouldn\u2019t be a tech sector,\u201d he says. <\/p>\n
Wealthy Greeks, who normally invest abroad, have put money in his fund. \u201cThat would have been unthinkable five years ago,\u201d he says.<\/p>\n
After years in survival mode, Ioannou\u2019s ISV is back operating at pre-crisis levels.<\/p>\n
But although investment as a share of GDP has increased to 15 per cent, it is still well short of the EU average of about 20 per cent. Spyros Theodoropoulos, chair of the Hellenic Federation of Enterprises, notes that Greece has a net investment shortfall of more than \u20ac100bn \u2014 a legacy of years of under-investment and capital depreciation. \u201cWe lost a decade of productive investment,\u201d he says.\u00a0<\/p>\n
A big project by Microsoft to build data centres in Athens \u2014 vaunted by Mitsotakis at its launch in 2020 as a symbol of Greece\u2019s transformation into an \u201cinvestment destination\u201d \u2014 has still not been completed.\u00a0\u00a0<\/p>\n
\u201cThere was real momentum after the crisis, but expectations sometimes outpaced reality,\u201d says Theodosis Michalopoulos, former head of Microsoft Greece, Cyprus and Malta. \u201cProjects of this scale naturally require time.\u201d<\/p>\n
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This government had to solve the perennial problems the country had economically, politically, institutionally, all the things discussed for decades<\/p>\n<\/div>\n<\/blockquote>\n
Average hourly productivity is less than half the EU average, a figure that underpins broader concerns about competitiveness and wage stagnation. The country continues to rely heavily on sectors such as tourism and real estate \u2014 a comparative advantage for sun-kissed Greece, but not necessarily conducive to long-term value creation.\u00a0<\/p>\n
Nikos Vettas, head of the Foundation for Economic and Industrial Research, a think-tank, says \u201cwe need more high-value production \u2014 goods and services based on innovation, uniqueness, and export potential \u2014 not just commodities\u201d.<\/p>\n
Reforms to education, the justice system and public administration have only been \u201cbaby steps\u201d. \u201cWe missed a golden opportunity,\u201d Vettas says. \u201cEven with a pro-reform PM and political stability since 2019, we didn\u2019t pursue ambitious structural reforms with enough intensity.\u201d<\/p>\n
But some point out the challenges of reforming a country whose structural flaws, mindsets and bad habits long predate the crisis \u2014 issues such as slow justice and bureaucratic paralysis.<\/p>\n
\u201cThis government had to solve the perennial problems that the country had economically, politically, institutionally, all the things discussed for decades,\u201d says Greece\u2019s finance minister Kyriakos Pierrakakis. \u201cAnd on the other hand the government gets elected and has to handle all the emerging challenges and crises of the last six years.\u201d<\/p>\n
For Chouliarakis, the former deputy finance minister, the return to pre-crisis prosperity is still a distant goal, despite the growth figures Greece is posting today. The country may be outperforming its peers, but the damage done during the crisis years was so profound that convergence will require a generation of sustained outperformance.<\/p>\n
\u201cWe would need to grow by 1 per cent higher than the rest of the EU for another 15 years to be where we were in 2007,\u201d he says.<\/p>\n
Greece\u2019s crisis left behind<\/strong> a different country, but it also transformed the EU, albeit after a faltering start.<\/p>\nAs the contagion spread to Ireland, Portugal, Spain and Cyprus and threatened the rest of the Eurozone, the bloc eventually agreed to set up its own permanent rescue fund, what became the European Stability Mechanism. It put in place a new system for winding up failed banks. And the ECB became a lender of last resort with president Draghi\u2019s landmark pledge to \u201cdo whatever it takes\u201d to save the euro.<\/p>\n
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Banks have become more political and much more national than they were. We need a real banking union to cut this sovereign doom loop<\/p>\n<\/div>\n<\/blockquote>\n
\u201cBecause of Greece, Europe changed,\u201d says Stournaras of the central bank. \u201cGreece was the midwife of history.\u201d<\/p>\n
When the pandemic struck in 2020, the legacy of Greece\u2019s bailouts underscored the need for EU solidarity and an \u20ac800bn recovery fund. A senior EU official says the pandemic recovery fund\u2019s model of investment in return for reforms proposed by national capitals was shaped by lessons from Greece.<\/p>\n
But the Eurozone still has no sizeable budget or permanent fund to offset shocks. Moves to create a banking union, including a pan-European deposit insurance scheme to reduce the risk of stricken banks bringing down highly indebted governments and vice versa, are stuck.<\/p>\n
\u201cBanks have become more political and much more national than they were,\u201d says Luis Garicano, co-author of Crisis Cycle: Challenges, Evolution, and Future of the Euro. \u201c<\/em>We need a real banking union to cut this sovereign doom loop.\u201d<\/p>\nButi, the former European Commission official, says the pattern of European decision-making that characterised the Greece crisis \u2014 denial, panic, courageous decisions, complacency \u2014 still prevails in the EU.\u00a0<\/p>\n
\u201cAs soon as you take bold decisions, and the situation improves, the urge to complete the job goes down.\u201d<\/p>\n
The consequences of that pattern still scar Greece. Nearly a third of Greeks are at risk of poverty or social exclusion, according to 2024 official data. Piagkou, the newspaper seller, still carries an enormous debt. Yet through the kindness of strangers, she was lent a modest apartment she now calls home.<\/p>\n
\u201cThe IMF and EU have learnt from this. Greece forced the Eurozone to evolve,\u201d says Stournaras. \u201cBut we paid the price \u2014 painfully and publicly.\u201d <\/p>\n<\/div>\n\nSource link <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Dimitra Piagkou remembers precisely the day in 2011 when she \u201cbroke\u201d. She climbed to the top floor of…\n","protected":false},"author":6,"featured_media":34100,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[23],"tags":[],"class_list":["post-34099","post","type-post","status-publish","format-standard","has-post-thumbnail","category-us","cs-entry","cs-video-wrap"],"_links":{"self":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/34099","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=34099"}],"version-history":[{"count":0,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/posts\/34099\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=\/wp\/v2\/media\/34100"}],"wp:attachment":[{"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=34099"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=34099"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/financialrush.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=34099"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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