Greece teeters on a knife-edge. Today, its 11 million citizens go to the polls to vote on whether to accept more painful austerity in return for financial rescue, or go bankrupt and risk getting kicked out of the 19-nation eurozone.
For the past six months, Greece has been locked in a standoff with its European creditors as its economy descended into chaos and disaster. But the seeds of the Greek debt tragedy were sown long before:
1. Greece joins the euro in 2001
Economists and government leaders are sharply divided on the move, not just because of Greece’s weak industrial base, but also its bloated bureaucracy and widespread tax evasion - “a national sport” with up to €30 billion (S$44.9 billion) per year going uncollected.
Nobel prize-winning economist Milton Friedman warns that beause it shares the euro, Greece will not be able to get out of an economic crisis by devaluing its currency.
For now, Greece seems to prosper. Its per capita GDP more than doubles from US$12,000 in 2000 to US$31,000 in 2008. The government spends heavily on defense, generous pensions and benefits. Civil service salaries double in ten years. The spending, however, is being financed by massive low-interests loans from European governments, banks and bondholders.
2. The 2008 financial crisis hits
Every country in Europe enters a recession, but because Greece is one of the least prepared and most indebted countries, it suffers the most. The unemployment rate soars to 28 per cent by 2013, more than what the United States suffered during the Great Depression.
Worse still, the new socialist government admits that the country had under-reported its deficits to qualify for the eurozone and Greece is actually €323 billion in debt - more than twice the level in 2001.
3. The first bailout begins
In May 2010, Prime Minister George Papandreou signs the first of two bailout packages, agreeing to implement painful spending cuts and higher taxes in return for €110 billion of rescue money.
Two years later, as wages and GDP sink and unemployment rises, Greece’s “troika” of creditors - European Commission, International Monetary Fund and European Central Bank - are forced to come to its rescue again with a larger €130 billion package.
4. Violence erupts
Nationwide riots and strikes break out as protestors protest at government cutbacks. Three people are killed when petrol bombs are thrown at a Marfin Egnatia Bank branch on Stadiou street. Papandreou resigns in 2011.
5. Syriza and Tsipras come to power
The government of Antonis Samaras collapses after failing to get its presidential candiate elected. A coalition of the radical left led by Syriza Party takes over with new PM Alexis Tsipras promising an end to austerity.
This puts it on an immediate collision course with the country’s creditors with Greece’s bailout programme due to expire at the end of February.
6. A tentative recovery unravels
The uncertainty surrounding the country’s financial future begins to wreak havoc on the Greek economy. Barely six months after figures showed it was growing again, Greece is back in recession. The uncertainty generated by the failure to carve out a deal damages confidence among investors, consumers and business owners.
7. Cash crunch and capital controls
After Greeks pull out billions of euros from their bank accounts and ATMs run dry, Tsipras announces capital controls: Banks are shuttered and long lines form outside ATMS as Greeks are told they can only withdraw up to 60 euros a day, double for pensioners.
The world watches and waits as Tsipras and the creditors go back and forth over reform proposals. But midnight on June 30 comes and goes without a deal and Greece's bailout programme expires. It also effectively defaults on a 1.5-billion-euro debt repayment to the IMF, becoming the first developed country to do so.
Tsipras announces a referendum on July 5 on earler reform proposals.
9. Economy on brink of collapse
As the cash crunch bites, six businesses a day are forced under. Food, petrol and vital medicine start running out because companies can’t pay their suppliers with bank transfers now banned. Tourism, the mainstay of the Greek economy, is badly hit as some 50,000 holidaymakers cancel their bookings.
Banks meanwhile say they have just €1 billion in cash left - equal to just €90 a head - barely enough to survive the weekend.
Going by the latest polls, the Greek referendum is too close to call. Tens of thousands have taken to the streets in rival rallies that lay bare the nation’s deep divide.
“I urge you to say no to ultimatums, blackmail and fear. To say no to being divided,” Tsipras exhorts the packed crowds at Athens’ Syntagma square.
At the ‘Yes’ camp, thousands rally in front of the old Olympic Stadium to Beethoven’s “Ode to Joy,” the anthem of the European Union. “I prefer to vote ‘Yes’, have a few more years austerity and give my child a better future,” said unemployed economist Marina Peppa, 45. “It’s not going to be easy, but if ‘No’ prevails we’ll have Armageddon.”
Whatever the outcome, this Greek drama will not be over soon and the country will need all the help it can get to survive the next few years. In return, the Greeks will need to deliver more than referendums and protests.
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