The country of the Parthenon is poised for a fresh collapse on Tuesday, when the Greek government is expected to miss a 1.6 billion euro ($1.8 billion) payment to the International Monetary Fund (IMF). The default will send the already cratered economy on a course that’s uncertain in almost every way except for its direction and general velocity: downward and fast.
The failure guarantees a fresh round of suffering for the country’s workers. If you’re in the Greek labor force, there’s a one in four chance you’re unemployed at the moment — unless you’re 25 or younger, in which case your chance of wall-leaning and stoop-sitting is more like one in two.
Hundreds of people gathered near Parliament in Athens on Sunday and Monday, denouncing the IMF and passing out leaflets that favored a default over continued budget cuts. The gatherings were smaller than the anti-austerity riots of three or four years ago. But that’s probably less a sign of hope, then of desperation. The country’s banks are closed for at least a week in a bid for stability; ATM withdrawals have been capped at about $60 a day. At that amount, who can afford gas masks let alone permanent markers and poster board?
To understand where Greece is headed, what it means for Europe, and whether we should all invest in bunkers, gold bars and bulk food, it’s necessary to trace the story back a few years, and then follow the thread forward. It’s a messy tale, of course.
The debt problem was there when Greece faked its way into the European Union in 2001. The eurozone is a union of 19 countries that have accepted the euro as their sole legal tender, the only money in their collective pockets. Member countries were required to run no more than a 3% deficit, which Greece claimed to beat in what was essentially their application to the EU. A 2004 audit showed otherwise. The real deficit was closer to 15%.
No one noticed Greece’s insurmountable debt during the boom times. Between 2004 and 2007, the world economy expanded rapidly, and Greece’s deficit problems disappeared beneath a wave of cheap loans and foreign investments. Among the issues later identified: Huge public pensions, generous official retirement ages in the mid-50s, widespread corruption, a culture of tax evasion, and insanely bloated government salaries.
After the crash, Greece became a certified global charity case. In May of 2010, the eurozone and the IMF agreed a three-year package to rescue Greece’s debt-ridden economy. The deal included painful cuts, totaling more than 30 billion euros. Goodbye, bonuses for public workers. Goodbye, pension increases. Hello, new taxes on booze, tobacco and gasoline. The streets filled with violent protests and at least three people died, including a pregnant woman.
The country’s current prime minister promised to end the economic pain. The real Greek deficit, when it was finally calculated a few years ago, was five times what was expected. Over the years, it has required ever larger, more humiliating loans from the European Commercial Bank and the IMF. Finally, back in January, Alexis Tsipras rose to power on the promise of better terms on those loans, and a plusher life for the country’s agonized people. It was a classic campaign political promise — perhaps doomed to fail.
But over the weekend, the negotiations abruptly broke down: After five months of trying, representatives of the IMF, the eurozone and the Greek government failed to reach a deal. In exchange for their continued loans, the finance ministers and global money managers wanted more of what Tsipras said he would end: Taxes, budget cuts, and pension limits. Tsipras refused the deal. Then the purse-holders refused to extend their loans, setting up Tuesday’s default. Bloomberg View blamed both sides, calling it “a textbook case of political shortsightedness and catastrophic mismanagement.”
It looks like Greece will be out of the European Union, which threatens the union itself. Blaming the continent’s bankers for his political woes, Tsipras walked away from the negotiating table Sunday, calling for a vote on the new austerity measures. If the bewildered country votes to accept the measures, it will stay in the EU and walk a safe path toward solvency. If it votes “no,” many experts expect Greece to make a swift, semi-voluntary exit from the eurozone, and crank up its own currency machines. That will shock the whole system, but it may be the only way the country’s banks can give account holders their money, and still function themselves.
Whatever happens, don’t expect a global meltdown. Greece is already quarantined from the wider financial system, experts say, which limits the potential mayhem of a Greek default. U.S. Treasury Secretary Jacob Lew reportedly urged the IMF and his French and German counterparts to get Greece an emergency loan extension, but while the news of a Greek default caused the global stock markets to shudder, they haven’t collapsed. For now, most people expect it to stay that way.
Then again, who really knows? Whatever the result of the vote next Sunday, this is a climax in the story of Greece’s debt crisis. And yet there are a lot of pages to turn before this epic is done.