Between 2009 and 2012 Greece went from being a eurozone country with apparently solid growth to the brink of bankruptcy. Its crisis became the eye of a storm that threatened the entire single currency.
Causes
After joining the euro in 2001 Greece could borrow at very low rates, close to Germany's. Easy money funded consumption, public wages, pensions and projects such as those for the 2004 Athens Olympics, but not higher productivity. The weaknesses were old: widespread tax evasion, a heavy public administration, a generous pension system, uncompetitive exports and opaque public accounts.
The outbreak
- October 2009Giorgos Papandreou's new government announces that the 2009 deficit is not around 6% but over 12% of GDP; it is later revised to 15.4%.
- December 2009Rating agencies downgrade Greece; bond yields rise.
- Early 2010Spreads explode; Greece can no longer borrow on the markets.
- 2 May 2010Agreement on the first bailout: €110 billion from eurozone countries and the IMF.
- 5 May 2010General strike in Athens; three bank employees die when their branch is set on fire during riots.
The troika and austerity
The loans came with a memorandum: a programme of cuts and reforms monitored by the so-called troika of the European Commission, the European Central Bank and the International Monetary Fund. Measures included cuts to public wages and pensions, higher VAT and other taxes, privatisations, public-sector layoffs and labour market reforms.
Austerity cut the deficit but crushed domestic demand. The recession was far deeper than forecast and debt, instead of falling, rose as a share of GDP. Syntagma Square became the scene of almost daily protests, such as the Indignants movement of summer 2011.
The second bailout and the haircut
By 2011 it was clear the debt was unsustainable. After months of negotiations Papandreou resigned and a technocratic government led by economist Lucas Papademos took over. In March 2012 a second programme of about €130 billion was approved and, above all, the PSI (Private Sector Involvement): private creditors agreed to swap their bonds for new ones worth much less, cancelling about €107 billion of debt. It was the largest sovereign debt restructuring in history.
Social consequences
| Indicator | Before the crisis | At the worst point |
|---|---|---|
| GDP (2008 = 100) | 100 | About 75 in 2013 |
| Unemployment | 7.8% in 2008 | Over 27% in 2013 |
| Youth unemployment | about 22% | Over 55% |
| Gross minimum wage | €751 (2011) | €586 in 2012 |
Thousands of shops closed, many families lost homes or jobs, hundreds of thousands of young graduates emigrated. The crisis also reshaped politics: two-party rule collapsed, new parties emerged and protest votes grew, including for the far-right Golden Dawn, convicted in 2020 as a criminal organisation. In June 2012 elections led to a coalition government under Antonis Samaras.
The story continues in the 2015 crisis and the European bailouts. See also the Greek economy today.