In 2015, Greece defaulted on its debt after failing to pay a $1.4B payment to the International Monetary Fund (IMF). It is easy to blame this issue on poor leadership or bad luck, however, there are a plethora of factors that allowed this catastrophe to occur. To investigate why Greece was the first developed nation to ever default on debt in recorded history, one must look at the economic decisions made before the catastrophe. In 2001, Greece joined the Eurozone (the geographic and economic region that contains all of the countries within the European Union) and adopted the Euro as its currency. The Eurozone is the largest economic zone in the world; its currency is considered to be the most liquid (accessible) and is held within the European Central Bank (ECB). The ECB is inherently biased, however, towards countries that contribute the most wealth to it such as the UK, Spain, and France. It often ignores monetary issues in less significant nations such as Greece.
Greece, before entering the Eurozone, already faced economic decline resulting in soaring inflation rates, high tax rates, trade deficits, and low growth rates. Greece spent nine years (1992-2001) adjusting its economic policy to fulfill the requirements for joining the Eurozone with the hope that adopting a new currency would reduce inflation and spark economic growth. Despite the efforts made by Greece to join the Eurozone, the struggling nation came short of the mark. Greece, however, joined the Eurozone under false pretenses in an attempt to salvage the nation’s stunted economy. After they joined, the nation’s interest rates decreased and investments were contributed to the nation by the European economic communities. Greece borrowed an immense amount of money for an extremely low rate allowing the nation to make necessary economic improvements while letting the country’s deep-rooted fiscal issue remain unaddressed.
This fiscal issue was the result of a lack of revenue, which occurred due to systematic loopholes that allowed all self-employed Greeks to almost avoid taxes entirely by underreporting income and overreporting debt payments. Greece was able to borrow billions of dollars for six years, all while the nation’s deficit grew exponentially. This continued under the radar until the Global Financial Crisis of 2007, which reduced Greece’s already weak tax revenue causing its deficit to grow even further. Greece reached a liquidity crisis forcing them to request bailout funding from the International Monetary Fund (IMF). The IMF required Greece to increase tax revenue and decrease spending, which caused a cycle of recession in the nation that sent the remains of the economy off the rails. Unemployment reached 25.4% in 2012, homelessness increased dramatically, suicide rates hit record highs, and public health significantly declined. The IMF’s requirements turned the worst economic disaster since the Great Depression into a complete economic implosion and humanitarian crisis. These “bailouts” from the IMF were only provided to the Greek Creditors to ensure their continued payment, meanwhile, the rest of the nation remained neglected. Although joining the Eurozone allowed Greece to strengthen for a short period, it pressured Greece into sweeping its economic issues under the rug, which allowed this disaster to worsen in secret for almost a decade.
The rest of the EU watched as this disaster played out, failing to make deals that salvaged the Greek economy, and the resulting death toll was immense. Now as the international economic community nears yet another global financial crisis, we must prepare for more economic disasters similar to Greece’s, in the near future. This time there will be less money to lend and more at stake. Systematic changes have not been made to ensure the smaller nations’ economic security, especially nations that do not have the luxury of having international economic relationships. There is very little to fall back on for smaller nations struggling with the impossible task of ethically controlling Coronavirus while maintaining their economies.
