During our recent 2 weeks vacation in Amazing Greece we realized that as tourists it was extremely difficult to see how this country was affected by the crisis. All shops were opened, ATMs had cash, everything was running fine and people were the nicest we had met. Was the country really about to default? Impossible to tell. So we spent some time with several individuals to ask them how the crisis was impacting their day to day life.
Here’s what we learned.
What is the crisis about?
Greece is a small country in the south of Europe with a GDP of 180 billion Euros in 2014 (that’s 1.7% of Europe’s GDP). In 2009, when the financial crisis hit the world and spread to Europe, the public debt was at 125% of GDP, the public deficit running at 13.6% and the country was ill-prepared to weather a crisis of this magnitude.
In 2010, as the crisis intensifies, the Greek Government started to implement Austerity Packages. The first Austerity Package came in February. In March, a second Austerity Package was enacted in Parliament. In April, the Greek government officially requested an international bail-out package and in May, the first Bail-Out Package for Greece is agreed with its European creditors.
The first bail-out package is a 110 bn€ financing agreed by the Eurozone (80 bn€) and the IMF (30 bn€) under condition of implementing austerity measures, privatizing government assets and implementing structural reforms to improve competitiveness and growth (eg. salary cuts, increase retirement age and increase various taxes). The goal of the 1st bail-out package was to reduce the public deficit from 13.6% in 2009 to <3% in 2014 (it ended up being at 3.5% of GDP in 2014).
However, as the crisis worsened and 18 months later, a second bail-out package was agreed between Greece and the Troika of the European Commission, the IMF and the European Central Bank for another 130 b€. The interest rates of the bail-outs were retroactively decreased to 3.5% and the maturities extended.
This time, the requirements were that all the private bond-holders were to accept a 50% ‘haircut’, that Greece would implement another austerity package and that the majority of politicians were to sign an agreement on their continuing support of the measures after the 2012 elections. The goal of this 2nd bail-out package is to reduce the projected debt-to-GDP level from 160% in 2020 to a more manageable 120%.
In 3 years, the Greek Parliament has passed 7 Austerity measure packages, has accepted 2 international bail-out packages and the total debt stands now around 320 bn€, or 180% of its GDP. To make this debt manageable, after many negotiations between Greece and its creditors, most re-payments have been differed to 2020, maturities have been extended and the overall interest rate has decreased to 3%. Compared to other European countries, the weight of Greece’s debt interest payments as a ratio to GDP is now one of the lowest in Europe.
Source : The Economist.com
The impact on the population however has been brutal, as Greece’s per capita GDP has fallen by 31% between 2008 and 2014 and the Athens stock market has decreased by 87% since its peak in 2007. To put that in perspective, you have to go back all the way back to the Great Depression to find something comparable in the US. In 1929-1932 the GDP decreased 45% and the stock market tanked 85%.
These austerity measures have generated anger in the population towards their government and their creditors. Unemployment is at 26% and for the young coming out of university, unemployment is at 52%.
During our recent 2 weeks vacation in Amazing Greece we realized that as tourists it was extremely difficult to see how this country was affected by the crisis. We asked several people if they would like to share with us their stories on how their life has changed in the recent years and what they think about the future.
First we met with Helena, a 40 something professional with a political science background, born and raised in Athens. She recently had to leave Athens for Crete to find a job as a receptionist in a hotel.
(This is the end of Part 1. “The Social Impact of the crisis” and exclusive interviews with locals from Athens and the islands, how they live the financial downturn and how they see their future is in Part 2)
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Credits : Photo of Greek and European flags by Mick Baker