During episodes of financial shock, belonging to a common currency can be a severe stress if policies do not account for the especial needs of hard-hit regions. Such was the case in the wake of 2008, when the contagious US financial bubble burst and spread woe throughout Europe. Greece, Italy, and Spain especially struggled under financial policies largely set by solvent and scrupulous Germany, the EU’s dominant nation by dint of being solvent and scrupulous. The crisis revealed the insensibility of having a common currency while retaining separate sovereignty, especially when the only accountability is widespread hardship for the people in an afflicted country.
A state with its own currency can respond to an economic shock by altering its monetary exchange rate, and so spur recovery. (There are several ways to adjust currency exchange rates, including fiddling interest rates.) That flexibility is lost under a single currency.
Under a common currency, the only possible adjustment for a weakened economy in a larger monetary zone is for wages to drop: a measure which only imposes misery and further depresses the economy, as well as risking rioting.
A 3rd way to address a depressive shock is with lumps of government spending to prop up a sagging economy. This can be done sensibly only if the cost of incurring additional public debt is bearable. In the euro zone, such largesse is supposedly forbidden, though it has been practiced most ardently in countries least able to afford it. Though sharing a common currency, national budgeting and attendant sovereign debt are still managed by individual countries.
The bond markets act as the only accountability, and seldom do so with prudence. Once bond markets balk by charging high rates, a country is in hock so deep that it must beggar its EU brethren for alms. At that point, demands for austerity from a country already in dire straits proves an excellent formula for political alienation; exactly what the European Union and euro were not supposed to be about.
The ability to remain solvent by rolling over debt is a confidence game played on investors. In the aftermath of the 2008 crash, Greece was no longer able to play the game. Investors wanted usury rates to finance Greece’s debt. The long-standing deception surrounding Greece’s public finances had finally caught up with it.
Spain, Portugal, and Italy were other shady countries caught out by the global economic shock, but they got off easy compared to Greece, where corruption is so commonplace as to be a cultural more.
Our basic problem is systemic corruption. ~ Greek prime minister George Papandreou in 2009
Greece badly needed a bailout. And it got one. Then it needed another. And another.
The price imposed by supranational lenders was austerity measures designed to reign in Greece’s reckless sovereign debt. (The lenders were the International Monetary Fund (IMF) and European Central Bank.) This meant cuts in public spending combined with increased taxes: a double whammy to a country economically flat on its back.
It’s all about exchange and solidarity, helping one another out in these very hard times. ~ Greek home keeper Angeliki Ioanitou
Impoverished Greeks managed the best they could. Bartering became widespread. At least one community adopted a local currency to facilitate trade.
The average Greek will throw anything into the fireplace that can be burned in order to get warm. ~ Greek environmentalist Stefanos Sapatakis
As the depression wore on, the hills around Greek cities were denuded as residents illegally chopped down trees for firewood. During the winter, the air in Athens resembled London’s Great Smog of 1952.
Greeks can’t see any light at the end of any tunnel. ~ Greek citizen Chryssa Christodoulaki in 2012
The government’s austerity measures were most oppressive to those least able to accommodate further duress. Tax evasion by the rich, and corruption by the business and political elite, continued unabated.
We can take no more. Out with the EU and IMF. ~ Greek anti-austerity protesters in 2012
Austerity led to general strikes and rioting. The turmoil roiled Greek politics.
Uncertainty is the new normality. It could manifest itself in apathy, violence, more uncertainty, we just don’t know. ~ Greek psychologist Fotini Tsalikoglou
Facing more austerity for another bailout in mid-2015, Greece’s prime minister Alexis Tsipras held a snap referendum on whether to accept the bailout terms then being offered. Tsipras recommended rejection, which the voters agreed with. Then, within days, Tsipras reversed himself (ignoring the results of his sponsored referendum) and struck a deal with supranational lenders, getting the bailout that Greece so desperately needed at terms considerably worse than before his flailing temper tantrum. In an epiphany of rationality, Tsipras had stared into the abyss of sovereign bankruptcy and unceremonious ejection from the EU, and unilaterally decided against it.
The Greek parliament backed the new bailout, though only with support from the pro-European opposition party, while Tsipras’ own party was divided. With the additional dollop of aid came another squeeze of austerity. Greece limped on, toward the next crisis.
In early 2017, worries about Greece’s overwhelming sovereign debt flared up again. By that time, Greece’s economy had shrunk 25% since 2010. Having sufficiently suffered under the yoke of the euro, Greece got another bailout: kicking their can of sovereign debt down the road one more time.
There is now light at the end of the tunnel. ~ Greece finance minister Euclid Tsakalotos in June 2017