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Why is Greece in so much debt? A brief background to the crisis

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Issue 2460
Syriza leader Alexis Tsipras (left) and European Commission president Jean-Claude Juncker
Syriza leader Alexis Tsipras (left) and European Commission president Jean-Claude Juncker (Pic: Prime Minister Alexis Tsipras on Flickr)

1. Why is Greece in debt?

Bankers loaned billions to the Greek government in the 2000s to gamble on rapid growth. 

Greece was especially profitable, because the euro tied its relatively weak economy to countries such as Germany.

But the banks tried to call in their debts after the crisis hit in 2007-08. The Greek economy shrank during the recession and tax revenues fell. 

Fearing it wouldn’t pay back its loans, the bankers charged higher and higher interest rates. The bailout was really a bailout of these bankers. 

The institutions made sure they got paid—most of the loan money went straight to them without paying for anything in Greece.


2. Shouldn’t Greeks learn to live within their means?

Greek workers have to work some of the longest hours on some of the lowest wages in Europe. Public services have suffered devastating cuts.

It’s true that their pension age is lower than in many other countries. 

But this is partly a way of masking unemployment among older workers.


3. What is the International Monetary Fund (IMF)? 

The IMF was set up after the Second World War to lend money to governments that can’t get loans privately. But in return it gets to demand conditions.

Britain’s Labour government had to go “cap in hand” to the IMF in 1976 after the rich turned against it.

The IMF demanded Labour made cuts deeper than anything Margaret Thatcher would do.

In the 1980s and 90s the IMF imposed devastating “structural adjustment” programmes on African, Asian and Latin American countries. 

These privatisation and free market reforms led to widespread poverty and rocketing food prices.


4. Will Greece have to leave the euro? 

Neither the Greek government nor its creditors want this. For leaders in other eurozone countries, the euro helps boost exports. 

It is also gives them a powerful tool to control the Greek government. It puts its “monetary policy”—such as setting interest rates—in the hands of the European Central Bank. 

There is no automatic reason that Greece would be forced out. No one can stop it using the euro as a currency. Kosovo and Montenegro aren’t in the EU but use it. 

But the Greek anti-capitalist left demands that Greece leaves the EU that forces austerity on it, and default on the bankers’ debt. 


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