Greece has been in turmoil since the financial crisis of 2008. According to the World Bank website, Greece currently has an unemployment rate of 25.9 percent. The anti-austerity party, Syriza, gained the majority in the Greek Parliament on Jan. 25. Syriza’s leader, Alexis Tsipras, has become the new prime minister of Greece.
The BBC reports that on the campaign trail, Tsipras promised the Greek voters to renegotiate the Greek debt bailout signed by the previous ruling political party, New Democracy. Greece owes 323 billion euros to several financial institutions and Eurozone members, and 60 percent of Greece’s debt is held by Eurozone members. The crisis in Greece was a result of borrowing money over the last 10 years from European banks and other countries. Greece used this borrowed money to finance the 2004 Olympics Games and to give pay raises to government employees.
When the 2008 banking crisis happened, the cost of borrowing money from banks rose drastically, leaving Greece in a hole it dug itself into. Unable to pay back the loans, Greece was left with a huge amount of debt. Other members of the Eurozone came together in 2011 to help relieve Greece of its debt issues. They concluded that the banks that had loaned money to Greece should cut the amount that Greece owed in half, and in return these banks would receive even more financial backing from European governments.
This debt solution came with strict conditions. For example, the Greek government had to cut spending on schools and hospitals, the prices of consumer products rose drastically due to the heavy taxation implemented by the Greek government, and government employees’ pay was drastically cut while thousands lost their jobs. These restrictions on the Greek economy left many Greek citizens unhappy and many protests and riots broke out all over the country.
The Greeks voted for Tsipras because of his promises to effect change. Alex Tsipras has pledged to reconstruct Greece’s economy. In a recent speech to the Greek Parliament, he pledged commitments such as a gradual rise in the minimum wage to $850 per month, bonuses for low-income pensioners, reinstatement of public sector employees who “fired illegally” and the creation of a new national broadcaster.
The notion for Greece to leave the Eurozone has come up in recent months, which could have several potential outcomes. Former U.S. Federal Reserve Chairman Alan Greenspan trusts that once Greece exits, it would mark the end of a single currency in Europe. A Greek exit would also leave Greece’s debt with the European Central Bank.
On the other hand, some speculate that a Greek exit would benefit the Eurozone. David Kotok, chairman and chief investment officer at Cumberland Advisors Inc., believes that Greece is the rock tied to the Eurozone, dragging it down to the bottom of the Mediterranean.
“(The) Eurozone can withstand the loss and will be better after Grexit,” Kotok told the Financial Post. “Feeding more to a failed system of governance only exacerbates the final cost.”
The next couple of months for Greece will be crucial ones, as the weight of the Eurozone rests on Greece’s shoulders.