Why is greece broke

If you take as a baseline, Greece has cut government spending by much more than other eurozone countries. Indeed, as Paul Krugman wrote , "If you add up all the austerity measures, they have been more than enough to eliminate the original deficit and turn it into a large surplus. But Greece is in worse shape than ever. Krugman again: " Because the Greek economy collapsed, largely as a result of those very austerity measures, dragging revenues down with it.

The Greeks may not have had a choice other than austerity. But austerity has still been a disaster for them. This chart shows the value of the euro against the dollar, and the basic takeaway is simple: It's held pretty steady through Greece's crisis.

The normal way a country like Greece would deal with these kinds of problems is to sharply devalue their currency in order to boost tourism and exports. But because Greece is part of the euro, and because they don't control eurozone monetary policy, they haven't been able to devalue. Eurozone monetary policy is controlled by the European Central Bank, which is more or less controlled by Germany, and so, unsurprisingly, eurozone monetary policy has been much better for Germany than for Greece.

So membership in the eurozone has slammed Greece coming and going: It led to the crazy borrowing rates that fueled the crisis, and then it made the crisis much more painful for Greece. For more on the failure of the euro in the crisis, see this great piece from Tim Lee. Speaking of tax revenues, there's no real need to belabor this, but Greece is unusually bad at collecting taxes.

These numbers come from the Organization for Economic Cooperation and Development , and they show what an outlier Greece is when it comes to tax collection. This isn't the cause of Greece's crisis, but it's definitely not helping the country get out of it.

This chart, which my colleague Matt Yglesias made with World Bank data and the program Paintbrush, is a bit odd, but it makes an important point. I'll let him explain it. The magenta line is more or less how things look to Greek people. Since or so, under the watchful eye of European Union elites the central bank, the European Commission, the International Monetary Fund, the government of Germany, etc.

And the Greek population has been thrown into a state of dire immiseration. The yellow line reflects more how things look to European officialdom. Greece is about on track for where you would expect it to be if you extrapolated forward from the pre-euro era. The prosperity of seven years ago was a bubble, driven by imprudent lending and dodgy government finances. Meanwhile, though Greece is a lot poorer than it was it's not actually a poor country in the global sense.

As a supplicant looking for charity, Greece is a lot less compelling than India or Guatemala or any number of sub-Saharan African countries. European Commission. This poll by the European Commission offers a damning look at the resentments building within the eurozone. Only 23 percent of Greeks — they are, confusingly for Americans, abbreviated as "EL" on the above chart — believe their voice is listened to within the eurozone. But perhaps more tellingly, only 52 percent of Germans — abbreviated as "DE" — feel the same.

This speaks to the fact that while the Greeks feel completely oppressed by the eurozone, Germans, despite their strength, also feel like they're getting a raw deal because they've had to subsidize countries like Greece. Indeed, a March poll found that a majority of Germans wanted to see Greece leave the eurozone. Our mission has never been more vital than it is in this moment: to empower through understanding.

Today, Costas is one of hundreds of thousands facing foreclosures by funds that have purchased debt like his from the banks at bargain basement prices. The bailiff and the auctioneer are circling above distressed homeowners and small business people such as Costas. How can we help these wretched souls? They will retort that investors who bought Greek debt or shares a few years ago have banked returns that no other market has provided.

Surely being able to refinance its debt at such low interest rates is evidence of recovery? But why would investors lend to the Greek government cheaply if it remains bankrupt? It planned to use the funds to pay interest on its debt. Greece continued with austerity measures. It passed legislation to modernize the pension and income tax systems.

It promised to privatize more companies, and sell off nonperforming loans. In May , Tsipras agreed to cut pensions and broaden the tax base. In return, the EU loaned Greece another 86 billion euros. Greece used it to make more debt payments. Tsipras hoped that his conciliatory tone would help him reduce the But the German government wouldn't concede much before its September presidential elections.

In July, Greece was able to issue bonds for the first time since It planned to swap notes issued in the restructuring with the new notes as a move to regain investors' trust. On January 15, , the Greek parliament agreed on new austerity measures to qualify for the next round of bailouts. On January 22, the eurozone finance ministers approved 6 billion to 7 billion euros. The new measures made it more difficult for unions strikes to paralyze the country.

They helped banks reduce bad debt, opened up the energy and pharmacy markets, and recalculated child benefits.

On August 20, , the bailout program ended. Most of the outstanding debt is owed to the EU emergency funding entities. These are primarily funded by German banks. Until the debt is repaid, European creditors will informally supervise adherence to existing austerity measures.

The deal means that no new measures would be created. How did Greece and the EU get into this mess in the first place? The seeds were sown back in when Greece adopted the euro as its currency.

Greece had been an EU member since but couldn't enter the eurozone. Its budget deficit had been too high for the eurozone's Maastricht Criteria. All went well for the first several years. Like other eurozone countries, Greece benefited from the power of the euro.

It lowered interest rates and brought in investment capital and loans. In , Greece announced it had lied to get around the Maastricht Criteria. The EU imposed no sanctions. Why not? There were three reasons. France and Germany were also spending above the limit at the time. They'd be hypocritical to sanction Greece until they imposed their own austerity measures first. There was uncertainty on exactly what sanctions to apply. They could expel Greece, but that would be disruptive and weaken the euro.

The EU wanted to strengthen the power of the euro in international currency markets. As a result, Greek debt continued to rise until the crisis erupted in Greece could have abandoned the euro and reinstated the drachma. Without the austerity measures, the Greek government could have hired new workers.

Greece could have converted its euro-based debt to drachmas, printed more currency and lowered its euro exchange rate. That would have reduced its debt, lowered the cost of exports, and attracted tourists to a cheaper vacation destination. At first, that would seem ideal for Greece, but foreign owners of Greek debt would have suffered debilitating losses as the drachma plummeted.

That would debase the value of repayments in their own currency. Some banks would go bankrupt. Most of the debt is owned by European governments, whose taxpayers would foot the bill. Plummeting drachma values would have triggered hyperinflation , as the cost of imports skyrocketed. Many companies refused to export these items to a country that might not pay its bills.

The country couldn't attract new foreign direct investment in such an unstable situation. The only countries that would have lent to Greece are Russia and China. In the long run, Greece would find itself back to where it began: burdened with debt it couldn't repay.

Interest rates on other indebted countries would have risen. Rating agencies would worry they'd leave the euro also. The value of the euro itself would have weakened as currency traders use the crisis as a reason to bet against it. A widespread Greek default would have a more immediate effect.

First, Greek banks would have gone bankrupt without loans from the European Central Bank. When Greece became the 10th member of the European Union on Jan. But the situation deteriorated dramatically over the next 30 years because fiscal profligacy, which is defined as wasteful and excessive expenditure, caused deficits and debt levels to explode.

In Oct. In a continuing bid to keep Greek voters happy, both parties lavished liberal welfare policies on their electorates, creating a bloated, inefficient, and protectionist economy.

The government sent the country on an unsustainable fiscal path. For example, salaries for workers in the public sector rose automatically every year, instead of being based on factors like performance and productivity.

Pensions were also generous. A Greek man with 35 years of public-sector service could retire at the ripe old age of 58, and a Greek woman under certain circumstances could retire with a pension as early as Perhaps the most infamous example of undue generosity was the prevalence of 13th-month and 14th-month payments to Greek workers.

That is, workers were entitled to an additional month's pay in December to help with holiday expenses and also received one-half month's pay at Easter as well as one-half when they took their vacation. As a result of low productivity, eroding competitiveness, and rampant tax evasion, the government had to resort to a massive debt binge to keep the party going.

Greece's admission into the Eurozone in Jan. This was because Greek bond yields and interest rates declined as they converged with those of strong European Union EU members like Germany. For instance, the yield spread between year Greek and German government bonds plunged from more than basis points in to about 50 basis points in As a result, the Greek economy boomed, with real GDP growth averaged 3.

But that growth came at a steep price in the form of rising deficits and a burgeoning debt load. This was exacerbated by the fact that these measures for Greece had already exceeded the limits mandated by the EU's Stability and Growth Pact when it was admitted into the Eurozone.