April 23, 2010: Ten Years Since the Official Beginning of the Greek Financial Crisis



PM George Papandreou addressing the country from Castellorizo on April 23, 2010, a picture that became synonymous to the beginning of the crisis. File photo

It was a day much like this on April 23, 2010, when the then-Prime Minister of Greece George Papandreou announced from picturesque Castellorizo Island that Greece would officially ask for financial assistance from its fellow Eurozone member-states as the country was not able to borrow money from global markets anymore, and thus could very soon go bankrupt.

The events that led to this announcement on Saint George’s day, which happened to be the name-day of PM Papandreou himself, are now seen as probably the most dramatic chain of events in Europe’s modern political history, and can only be compared to what followed five years later, in 2015, when Greece went down the same perilous road for yet another time.

Historical Context

The socialist government of George Papandreou won the snap general elections of October 4, 2009 with a landslide on a Keynesian agenda, pledging billions of euros for Greece’s National Health Service, and educational system, as well as promising generous handouts to the lower economic classes of the country, by raising the taxes of high earners.

Papandreou’s motto, which still haunts Greece’s political life, was ”Lefta Yparchoun!” (“There is Money!”). This was the summarized — and misleading — response still gave at the time when asked about how his government would finance all his pledges.

This was a time when the world was still experiencing a dramatic downturn due to the 2008 financial crisis; however, Greece was still living in the bubble of a meretricious and artificial kind of prosperity which years of irresponsible public finance decisions had created.

The Greeks were enjoying salaries pretty much similar to the EU average, close to what nations such as France, and Germany could afford, and the Greeks spent with abandon at every given chance. The country’s economy was expanding due to this consumption, and people had lost the thrifty savings mentality with which they had been brought up.

Greece was heading towards the edge of a cliff, without remotely realizing what was about to happen.

The crucial mistakes

The previous center-right administration of Costas Karamanlis and his New Democracy Party continued to reassure the Greek public and the world that Greece would be shielded from the financial crisis.

Athens was beginning to admit that its deficit would be between 4-5 percent in 2009, higher than the 3-percent limit that Brussels allowed. However, the rest of the EU was recording even worse figures; so Athens was sure that ”everything was going to be fine.”

It wasn’t until Papandreou won the election when he got a true picture of the grim reality.

The facts were straight: The previous administration had simply been lying. It did not want to admit how bad the situation was, so Karamanlis went for snap elections, pledging mild austerity ”to prevent the worse,” which he knew very well was coming but never admitted publicly how terrible it was.

The deficit was running at around 10 percent of the GDP by October 2009, and it was heading toward an even worse upward trajectory.

This simply meant that Greece had been spending unbelievably higher amounts of money than what it could afford that year.

The newly-elected Papandreou was the son of one of Greece’s most beloved and controversial leaders, Andreas Papandreou, who formed the first socialist administration in Greece back in 1981.

His son George was now trapped between his party’s expansionist economic pledges and the harsh reality of an economy in shambles.

The Papandreou administration has been falsely accused of a lot of things over the last ten years; however, one undeniable mistake was that it did not act quickly when it realized just how catastrophic the situation was.

Papandreou spent several months between October 2009 and early spring of 2010 trying to balance between his social democrat agenda and the unavoidable austerity that Greece’s budget needed in order to balance its sheets.

This, in addition to the even worse figures which came to light in 2010, raising the 2009 deficit to 12 and later to a staggering 15.6 percent, led the economic and social situation of the country into unprecedented chaos.

The dramatic downturn

Brussels was furious with what they saw as Greece’s ”cheating,” of sweeping the problem under the carpet.

Jean Claude Juncker, the then-president of the Eurogroup and later President of the Commission, famously declared ”The game is over.”

Everyone was angry at Greece.

Papandreou falsely thought that Brussels would understand that the crisis wasn’t his fault but rather Karamanlis’.

However, the European Union could not have cared less about exactly who had led the situation to such a disastrous end. For almost everyone in Europe, it was the entire nation of Greece that caused the problem, not individual parties.

The credit rating agency Fitch was the first to downgrade Greece’s credit level, and all other agencies followed suit in an avalanche of bad news.

Greek bonds were very soon categorized as ”junk” status, meaning that literally no one was willing to lend money to Athens unless the country was willing to pay extraordinarily high interest rates.

From the tiny Aegean island of Castellorizo, Papandreou officially asked for a rescue package from Greece’s European partners in the 19-country eurozone club as well as the International Monetary Fund.

He did his best to avoid making this plea, but it was an inescapable destiny.

The bailout was soon agreed upon; however, it was tied to an unprecedentedly strict austerity plan, known in Greece as ”The Memorandum.”

The austerity provisions of this memorandum of understanding were so harsh that no Western nation had ever seen anything similar before. The desperate situation was only comparable to the Great Depression in the United States of 1929.

Greece borrowed €110 billion in 2010, an amount which finally reached the stratospheric number of 289 billion euros by the end of 2015. This is still the largest bailout for a country ever to be recorded in history.

The Greek economy went into a dramatic recessionary spiral, which was constantly being fueled by the even harsher austerity measures that the IMF and Brussels were imposing on Greece.

Led by Germany, the largest contributor to Greece’s loans, what was perceived as a spirit of ”punishment” for Greece was prevalent across Europe. For them, the Greek people were seen as the lazy, irresponsible son of the European family, who needed to be taught a serious lesson.

Greek citizens lost an average of 30-45 percent of their salaries nearly overnight while pensioners saw their lifetime savings being devalued at a similar, if not worse, rate and hundreds of thousands of people were losing their jobs every year.

Greece was living through a nightmare, with news bulletins becoming an everyday ritual of mourning and yet more distressing news, as its citizens would constantly learn about new cuts and additional tax rises.

Thousands of young scientists, professionals and entrepreneurs simply pulled up stakes and left the country, as the economy was stagnant, and their prospects for a better life were doomed.

The uncertain future

Ten years, two bailouts and a referendum later, Greece was finally breathing fresh air again. Athens was able to borrow as much as it needed at record-low interest rates, its budgets were producing surpluses rather than deficits and the country was heading towards a significant growth trajectory.

Of course, all these facts were true until last month.

With the coronavirus crisis now looming over us, Greeks are holding their breath again, and they hope wholeheartedly that this health emergency will not prove to be yet another financial hit that will last for years.

Prime Minister Mitsotakis has warned of a deep recession in 2020; however, he also pledged a dramatic boom in growth in 2021 after the economy recovers. We do hope he is right, for the sake of a people who have suffered so very much, and for so very long.

Greek Bailout: Was it Worth it?

Almost 10 years later and with half a million less Greeks in the country, one question remains about the years of austerity and crisis: Is Greece any better today? Full story: https://goo.gl/Jdqo1g

Posted by Greek Reporter on Saturday, January 19, 2019