The Greek Debt Crisis Explained

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The Greek Debt Crisis Explained

July 2015

Greece is broke. The country is in the middle of a debt crisis. Its government owes about $350 billion — 180% of its total GDP. The government is running out of cash and doesn’t have enough to pay back what it owes. It also doesn’t have enough money to pay government employees or to build roads and schools.

How long has this been going on?

The crisis started in 2009. The European Commission, the European Central Bank, and the IMF have bailed Greece out twice. Greece has agreed to make tough reforms.

How did Greece get into such a mess?

In 2002, 12 European Union nations dropped their national currencies in exchange for the euro. Some of these countries, like Germany, had much stronger economies than others, like Greece. But because of the shared currency, their economies are tied together.

For Greece, this was great. Suddenly, investors were more willing to lend the country money, and on better financial terms.

Then, two bad things happened:

The 2008 global financial crisis hit Greece’s economy hard.
The Greek government lied to other EU countries about its economic indicators.

Greece no longer looked so good to international creditors, and loan offers stopped, but the bills kept coming. Since 2009, Greece has been struggling to pay back the money it borrowed.

What is happening now?

In January 2015, the radical left-wing Syriza party gained a majority in the Greek Parliament, and its leader became prime minister. Syriza opposes the terms of the second bailout deal. The new government has been trying to change the terms of the 2012 deal.

If a bailout deal gives Greece more money, why renegotiate?

It's true that a bailout gives Greece more money. But in return for loans, the government has been forced to make some really tough reforms. These measures reduce government spending and services, and increase taxes. The government has cut government salaries and jobs, pensions, health and defense spending, and the minimum wage.

How bad is this for average Greek folk?

Unemployment is more than 25% nationwide. Many Greeks have left the country. Those who stay have been pulling their savings out of banks. Daily ATM withdrawals are limited to 60 euros (about $65), and businesses only accept payment in cash.