Greece Exits Bailout Program, But The Debt Will Not Disappear Yet
Greece announced it has completed the three-year eurozone bailout program designated to help the country to overcome its debt crisis. For the first time in eight years, Greece is now free to borrow at market rates.
The European Stability Mechanism (ESM) provided the bailout worth €61.9 billion for three years as an effort to help the Athens administration reform the economy and recapitalize its banks.
“For the first time since early 2010 Greece can stand on its own feet,” said Mario Centeno, the ESM head who supervised the bailout program.
He thanked the Greek people and the current government for their effort to save the economy and said there will be no follow-up programs, for the first time since 2010.
Alongside with the aid from the International Monetary Fund (IMF), the loan provided to Greek since 2010 has reached a worth of €288 billion, the biggest bailout in history.
A Brief Overview of Greece’s Debt Crisis
Debt had been a major problem even before the global meltdown hit the world in 2007 and 2008. When the global financial crisis shattered the world, Greece who joined the Eurozone in 2001 was among the hardest hit country.
The impact of the Greece crisis was also felt by 19 Eurozone countries who shared the burden of providing financial assistance to help the country get out of the debt.
Greece was on even more shaky ground when the leftist party Syriza (led by the current prime minister Alexis Tsipras), which had refused the policy set up by Brussels to tackle the debt crisis, won the election in 2015.
However, the aid provided by the IMF and the E.U. forced Greece to cut civil servants’ salaries, increase taxes and freeze retirement funds to boost efficiency. On June 30, 2015, Greece was the first developed nation to be declared in default after failing to pay its debt worth €1.5 billion.
The IMF admitted they provided the wrong solution to the country’s debt crisis by incorrectly predicting Greece’s debt sustainability in 2010.
“The Fund approved an exceptionally large loan to Greece under a stand-by agreement in May 2010 despite having considerable misgivings about Greece’s debt sustainability. The decision required the Fund to depart from its established rules on exceptional access. However, Greece came late to the Fund and the time available to negotiate the programme was short,” the IMF stated.
What’s next for Greece?
Greek Prime Minister Alexis Tsipras declared the completion of the three-year debt program a “day of liberation”, but not all Greek people are happy or relieved following the government’s announcement.
Michalis Lignos, a 78-year-old retiree told Anadolu Agency that everything will remain the same and the austerity program will likely continue.
Despite the exit from the bailout program, everything will not proceed without some bumps in the road. The Tsipras administration will have to deal with the impact of the Turkish Lira plunge.
The increase in the Fed benchmark rate and the clash with the U.S. following the detention of an American pastor in Ankara has sent the Turkish Lira and other emerging economies’ currencies on downward trends. The Turkish Lira has dropped over 40 percent since January 2018 to the U.S. dollar.
“This isn’t the end, there are fresh battles ahead,” Tsipras warned.
Greece’s debt will not just go away and their economy is now 25 percent smaller than when the crisis started. Greece will remain a debt-ridden country and have to pay loans for the foreseeable future.
The government may claim the unemployment rate stands at 19.8 percent, but data from The Labour Institute says that the real unemployment rate is around 27 percent.
It is expected that Greece will finally pay off 100 percent of its loans by 2060, based on the country’s plan to set aside 2.2 percent of its growth to repay lenders.