Aftershocks: The Political Fallout of Greece’s Economic Crisis

Aftershocks: The Political Fallout of Greece’s Economic Crisis
Supporters of Greece’s radical leftist party Syriza rally in Athens as European Union voters cast ballots in European Parliament elections, May 22, 2014 (Kyodo via AP Images).

This year, while the eurozone’s economy is grinding to a halt, the Greek economy may be able to grow by 0.6 percent, after six years in a row of recession. Greece follows the example of other countries of Europe’s periphery, such as Portugal and Spain, which after several years of recession are at last experiencing slim growth. Having almost defaulted on its sovereign debt in 2010, Greece has been bailed out through an economic adjustment program, the implementation of which is still closely monitored by the so-called troika of the International Monetary Fund (IMF), the European Commission (EC) and the European Central Bank (ECB). The adjustment program was specified in 2010 in a Memorandum of Understanding (MoU) and loan agreements signed between Greece and its creditors.

Under the agreements, the Greek government committed to fiscal consolidation and structural reforms in exchange for low-interest loans and quickly proceeded to make abrupt and deep cuts in wages, salaries, pensions and social spending, and to steep raises in income and wealth taxes. This year, having achieved its fiscal targets, the government announced its desire to exit the adjustment program in 2015. But in October 2014, the international markets reacted negatively to this prospect. The Athens stock exchange witnessed a rapid sell-off, while Greek 10-year government bond yields almost doubled within the span of a few days. While Greece is farther away from the abyss than it was four years ago, it may not yet be fit to navigate the rough seas of the global economy alone.

On the Brink of the Abyss

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