Greece Economy - History

Greece Economy - History

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GDP(Purchasing Power Parity: $251.1billion.
Per capita GDP: $23,500.
Growth rate: 3.5%.
Inflation rate: 3.3%.
Unemployment rate: 9.2%.

Budget: Income .............. $45 Billion
Expenditure ... $47.6 BillionMain Crops: Wheat, corn, barley, sugar beets, olives, tomatoes, wine, tobacco, potatoes; beef, dairy products Natural Resources: bauxite, lignite, magnesite, petroleum, marble Major Industries: Tourism; food and tobacco processing, textiles; chemicals, metal products; mining, petroleum

Economy of Greece

Although the economy of Greece had improved in recent decades due to industrial development and tourism, the country is getting out of a large and severe economic crisis.
The currency of money in Greece since January 2002 is the euro, which replaced the drachma. The preparation for the Olympic Games of 2004 gave an impulse to the Greek economy. In the last years, the country faced a severe debt crisis and had many challenges to face, such as the low rate of development and large unemployment (25% in December 2012).

The complete history of the Greek debt drama in charts

The value of any analysis depends, to a large extent, on the beginning and ending you choose.

So it is with Greece, which is seeing its simmering, half-decade-long debt crisis come to one of its periodic boils—and perhaps a final explosion.

Where to start? Records of Greek public debts stretch back at least as far as the Peloponnesian war—around 400 BCE. Should that be included? Or how about the fact that the modern nationstate of Greece has been in default for roughly half of the years since it gained independence from the Ottoman Empire in the 1830s? (After all, some trace Greek resistance to taxation to the historical taxes levied by the conquering Turks.)

For simplicity’s sake, let’s just start in the years before Greece joined the euro. In the 1980s, and early 1990s, the Greek economy was a bit of a mess.

Unemployment was high by recent standards. Greece experienced something of an economic boom after World War II, as its economy shifted from an agricultural to industrial base. But after the collapse of a military dictatorship in the 1970s, the economy was again struggling.

Prices were surging. The end of the military dictatorship sent the country into an inflationary spiral. Between 1973 and 1993, inflation ravaged the economy, averaging roughly 18% annually.

Government debts ballooned. The government tried to jumpstart the economy with deficit spending policies.

As a result, Greece’s borrowing costs were sky high. This made sense since investors wanted to be compensated for the inflation and default risks of lending to Greece. On the eve of Greece’s entry into the euro zone, its borrowing costs were starkly higher than its future monetary union mates.

Nevertheless, Greece became the 10th member of what was then known as the European Economic Community in 1981. Greece butted heads with Brussels throughout much of the 1980s, but, by the 1990s, the Greek political class had made gaining access to the European monetary union a priority. And, ostensibly, the government began bringing down both inflation and deficits in an effort to satisfy the Maastricht Treaty, which acted as the blueprint for the single currency union.

Greek inflation fell sharply. Over the course of the 1990s, it plummeted to average euro-area levels.

Deficits shrunk. But they didn’t shrink as much as first thought. In November 2004, Greece essentially admitted it had fiddled with its deficit numbers to ensure that its deficit was below the 3% of GDP hurdle that had to be met to get into the euro.

In January 2002, Greece did away with the inflationary drachma and adopted the euro.

Greek borrowing costs plummeted. Adoption of the stable currency, backed by the European Central Bank, installed confidence—and frankly overconfidence—in financial markets. Investors seemed to discard any concerns about the Greek economy, as well as the country’s shaky credit history. Yields on Greek government debt fell to levels on par with some of the most creditworthy countries in Europe, such as Germany. And that scenario persisted up until the eve of the financial crisis and Great Recession.

At first, this appeared to be a great thing. The pace of Greek economic growth quickened in the years after it joined the currency union. Between 1996 and 2006, quarterly economic growth jumped an average of 3.9% compared to the prior year. The Euro zone as a whole grew at about 2.2% during that period.

Times were good. Living standards improved, as GDP per capita rose by 47% between 1996 and 2006.

But government finances worsened. The vast improvement that Greece had made during the pre-euro period stalled out, and budget deficits also began to grow again.

Then came the crisis. Greek debt levels, which remained relatively high in the run-up to the crisis, attracted investors’ attention as growth weakened in 2008.

And then a new Greek government revealed that the country’s penchant for tinkering with economic statistics had flared up again, saying that the deficit was actually 12.6% in 2009, far worse than the 6% of GDP that had been previously announced. Suddenly, investors began to think that Greece was not as creditworthy as Germany, which sent the interest rates on Greek bonds soaring in 2010. The euro crisis had arrived.

The bailouts. Greece secured its first bailout in May 2010, in which the government committed to painful austerity measures in exchange for €110 billion ($145 billion). But the austerity measures helped send an already weak Greek economy into a tailspin. A second bailout did little to resuscitate the economy either. The recession, one of the worst in Europe since the Great Depression, has cut the size of the Greek economy by roughly 25%.

Unemployment is an obscene 25%. And it shows little sign of declining.

Meanwhile, the country’s debt load has only gotten worse. Though the bailouts briefly cut the debt load, the key debt-to-GDP ratio has continued to rise as GDP has collapsed, making the debts harder to pay off. In other words, for all the pain the Greek economy has suffered, the country is no closer to debt sustainability.

Which brings us to today. The embattled Greeks voted a left-leaning coalition of parties to power in January 2015. Led by Prime Minister Alexis Tsipras, Greece has negotiated to end the austerity measures it blames for the worst of its recession. But with Greece unable to strike a new deal with creditors, a slow motion run on Greece banks has gotten underway in recent months.

That’s made Greece’s banks increasingly reliant on funding from the European Central Bank.

And that funding abruptly ceased after Greek leadership called for a referendum on whether the country should accept proposals from international creditors. As a result, Greece has imposed capital controls—effectively limits on what people can do with their money. And the country has also shut the banks for roughly a week.

What next? Nobody knows. European policy makers seem fed up with negotiating with the Greek government. Greek leaders show no sign of stepping back from their plan to hold a vote on creditor proposals. (Even though creditors say those proposals are no longer on the table.) At any rate, what’s truly remarkable is that the Greek drama still has the power to attract the attention of the world, even after five years of crisis.

Greece - Overview of economy

The Greek economy grew significantly after World War II, but declined in the 1970s due to poor economic policies implemented by the government. As a result, Greece has spent much of the latter part of the 20th century and the early 21st century trying to rebuild and strengthen the economy. Thus, Greece is one of the least economically developed member countries in the European Union (EU).

While the Greek government encourages free enterprise and a capitalistic system, in some areas it still operates as a socialist country. For instance, in 2001 the government still controlled many sectors of the economy through state-owned banks and industries, and its public sector accounted for approximately half of Greece's gross domestic product (GDP). Limited natural resources, high debt payments, and a low level of industrialization have proved problematic for the Greek economy and have prevented high economic growth in the 1990s. Certain economic sectors are stronger and more established than others, such as shipping and tourism, which are growing and have shown promise since the 1990s.

The Greek government took measures in the late 1980s and 1990s to reduce the number of state-owned businesses and to revitalize the economy through a plan of privatization . This policy has received support from the Greek people and political parties of both the left and right. Despite the government's efforts, a drop in investment and the use of economic stabilization policies caused a slump in the Greek economy during the 1990s. In 2001, the Greek government fully encouraged foreign investment, particularly in its infrastructure projects such as highways and the Athens Metro subway system.

Soon after joining the European Union (EU), Greece became the recipient of many subsidies from the EU to bolster its struggling agricultural sector and to build public works projects. However, even with the European Union's financial assistance, Greece's agricultural and industrial sectors are still struggling with low productivity levels, and Greece remains behind many of its fellow EU members.

In the late 1990s, the government reformed its economic policy to be eligible to join the EU's single currency (the euro), which it became part of in January 2001. Measures included cutting Greece's budget deficit to below 2 percent of GDP and strengthening its monetary policy . As a result, inflation fell below 4 percent by the end of 1998—the lowest rate in 26 years𠅊nd averaged only 2.6 percent in 1999. Major challenges, including further economic restructuring and the unemployment reduction, still lie ahead.

The modern Greek economy began in the late 19th century with the adoption of social and industrial legislation, protective tariffs , and the creation of industrial enterprises. At the turn of the 20th century, industry was concentrated on food processing, shipbuilding, and the manufacturing of textile and simple consumer products. It is worth noting that, having been under direct control of the Ottoman Empire for over 400 years, Greece remained economically isolated from many of the major European intellectual movements, such as the Renaissance and the Enlightenment, as well as the beginnings of the Industrial Revolution. Therefore Greece has had to work hard to catch up to its European neighbors in industry and development.

By the late 1960s, Greece achieved high rates of economic growth due to large foreign investments. However, by the mid-1970s, Greece experienced declines in its GDP growth rate and the ratio of investment to GDP, which caused labor costs and oil prices to rise. When Greece joined the European community in 1981, protective economic barriers were removed. Hoping to get back on track financially, the Greek government pursued aggressive economic policies, which resulted in high inflation and caused debt payment problems. To stop rising public sector deficits, the government borrowed money heavily. In 1985, supported by a US$1.7 billion European Currency Unit (ECU) loan from the EU, the government began a 2-year "stabilization" program with moderate success. Inefficiency in the public sector and excessive government spending caused the government to borrow even more money. By 1992 government debt exceeded 100 percent of Greece's GDP. Greece became dependent on foreign borrowing to pay for its deficits, and by the end of 1998, public sector external debt was at US$32 billion, with overall government debt at US$119 billion (105.5 percent of its GDP).

By January 2001 Greece had successfully reduced its budget deficit, controlled inflation and interest rates, and stabilized exchange rates to gain entrance into the European Monetary Union. Greece met the economic requirements to be eligible to join the program of a single currency unit (the euro) in the EU and to have the economy governed by the European Central Bank's focused monetary policy. The Greek government now faces the challenge of structural reform and to ensure that its economic policies continue to enhance economic growth and increase Greece's standard of living.

One of the recent successes of Greece's economic policies has been the reduction of inflation rates . For more than 20 years, inflation remained in double digits, but a successful plan of fiscal consolidation, wage restraint, and strong drachma policies has lowered inflation, which fell to 2.0 percent by mid-1999. However, high interest rates remain troublesome despite cuts in treasury bills and bank rates for savings and loans institutions. Pursuing a strong fiscal policy , combined with public-sector borrowing and the lowering of interest rates, has been challenging for Greece. Headway was made in 1997-99 and rates are progressively declining in line with inflation.

The National Schism

The dictionary definition of schism (sizm) is in terms of a division within a religion. For Greece the word refers to a division of the population concerning political issues into camps such that each treats the other as the bitterest enemy. Initially the issue was monarchy versus democracy. Later it was over communism. But whatever the issue the national schism in Greece was not just a difference of opinion. The bitterness ran so deep that when one faction gained control of the government they fired the government employees, police and army officers belonging to the other faction and replaced them with members of their faction.

Initially the National Schism in Greece was associated with Eleutherios Venizélos.


He was an able and forceful political leader. He was born on the island of Crete when it was part of the Ottoman Empire. His father was involved in an insurrection against the Ottoman Sultan and had been exiled from Crete to the much smaller island of Síros. Eleutherios eventually ended up in Athens and attended and graduated from the law school there.

After graduation Eleutherios settled Crete as a lawyer and journalist. Soon he went into local politics. He organized the Liberal Party, the first modern political part of Greece. Venizélos participated in the Greco-Turkish War of 1897.

After the war, Britain and France forced the Ottoman Sultan to grant autonomy to Crete. Venizélos was made minister of justice under Prince George, the son of the king of Greece, George I. There were disputes between Venizélos and Prince George, ultimately leading Eleutherios Venizélos to organize a rebellion against Prince Geroge. Venizélos was forced to leave Crete but was later brought back by the successor to Prince George.

Venizélos had developed such a reputation for administrative ability that when a group of military officers organized a movement in Athens they asked Venizélos to join them as a top leader.

In the election of representatives to the national legislature Venizélos won as a representative for Athens. By October of that year he was made prime minister of the legislative assembly. Venizélos was able in 1911 to secure acceptance of a new constitution. That constitution gave great powers to an elected government. He immediately began reorganizing and building up the army. He contracted an alliance with Serbia and Bulgaria to drive the Ottoman Empire out of southeast Europe. The confrontation with the Ottoman Empire came soon. It was called the Balkan War of 1912. The alliance was succesful in driving the Turks out of most of the Balkan Peninsula, but they never made provision for the division of the spoils. The Balkan War continued during 1913, but between the erstwhile aliens rather than between them and the Turks.

Greece proved to be quite successful in the Balkan wars. She acquired twice the land area and double the prewar population. The acquired population was Greek-speaking. Venizélos was revered for his role in bringing more of the Greek-speaking population of the Balkans and their territory under Greek control.

The tension between the Greek monarchy and popular government came with World War I. Venizélos and his supporters favored the side of Britain and France and their allies. In part this was due to the historical support that Britain and France had given to Greek independence. The other part was that the Ottoman Empire had joined the enemies of Britain and France, the German and the Austro-Hungarian Empires. It would seem that it was obvious that Greece would support Britain, France and their allies. However there were special conditions. The king of Greece, Constantine, was married to the sister of Kaiser Wilhelm of Germany. Furthermore many of the top officers in the Greek military had undergone training in Germany and sympathized with her. Constantine had no illusions that he could bring Greece into the war on the side of Germany but he thought that he could keep Greece neutral. The supporters of the monarchy in Greece then supported Constantine's preferences in the matter.

Venizélos and his side won out and, with the help of Britain and France, they forced Constantine to relinquish power in favor of his son, Alexander. Venizélos and his Liberal Party ruled supreme.

The 1911 constitution did not provide for limitations in the power of a majority-supported government. In effect, Venizélos could rule as a dictator. This prompted his political opponents to unite into a coalition that defeated Venizélos and his party in the 1920 election. Venizélos demonstrated his adherence to democratic principles by peacefully relinquishing power to the newly elected leaders. King Constatine, who had not formally abdicated, was brought back as king of Greece. The arrogance of Venizélos while he was in power promoted a similar arrogance of his opponents when they acquired power.

The National Schism was not just the political polarization of Greece on the issue of popular power versus monarchical power. It also involved displacing the supporters of the opposition from positions in the bureaucracy, in the police and in the leadership of the military. In effect it divided Greece into two camps in which each side viewed the other as alien as foreigners. This dichasmos or political polarization continued long after the issue of monarchy versus democracy was settled by the disappearance of the Greek monarchy. It became a fact of life in Greek politics.

Although Venizélos lost political power in 1920 that was not the end of his political career. He did leave Greece for Paris in 1920. Greece suffered a devastating military defeat in Anatolia in 1922, largely as a result of military overconfidence. King Constantine was again deprived of his kingship and replaced by his son, George. Venizélos was brought back into Greek politics and became prime minister in 1924 and again in 1928. His prime ministership in 1928 continued until 1930. By that time he was about 66 years old and not able to cope with the demands of governing Greece as it succumbed to the world-wide economic depression of the 1930's. His Liberal Party was defeated in the election of 1932. He continued to be active in Greek politics until 1935 when he failed to prevent the legislature from bringing back monarchy to Greece. He left Greece for Paris once again and died in Paris in 1936 at age 72.

Economic Success in Ancient Greece

Learn how ancient Greeks viewed the success of the individual as the success of the community.

Geography, Human Geography, Social Studies, World History

Ancient Greeks may have been the original &ldquorugged individualists.&rdquo They believed in &ldquogood strife,&rdquo which encouraged competition and championed traits such as hard work, education, and innovation.

Ancient Greeks thought that the success of an individual, assuming a level playing field, also meant success for the community. Today, this idea can be seen in the work of philanthropists who share their wealth with others.

loosely united civilization founded on and around the Peloponnese peninsula, lasting from about the 8th century BCE to about 200 BCE.

economic system where the free exchange of goods and services is controlled by individuals and groups, not the state.

system of organization or government where the people decide policies or elect representatives to do so.

system of production, distribution, and consumption of goods and services.

person who donates money, goods, or services to those in need.

Media Credits

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Jeanna Sullivan, National Geographic Society


Caryl-Sue Micalizio, National Geographic Society


Sarah Appleton, National Geographic Society

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Related Resources


The economy is the system of production, distribution, and consumption of goods and services. There are different types of economies: command, traditional, market, and mixed. Each varies in their ideals and systems of controls. Economies are not borne in a vacuum. These controls, or regulations, are established by norms or laws put into place by those in power--usually a government--and they apply to individuals, industries, and governments alike. Select from these resources to teach your students about economies.

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Southern Europe, bordering the Aegean Sea, Ionian Sea, and the Mediterranean Sea, between Albania and Turkey

Geographic coordinates

Map references

total: 131,957 sq km

land: 130,647 sq km

water: 1,310 sq km

Area - comparative

slightly smaller than Alabama

Area comparison map

Land boundaries

total: 1,110 km

border countries (4): Albania 212 km, Bulgaria 472 km, Macedonia 234 km, Turkey 192 km


Maritime claims

territorial sea: 6 nm

continental shelf: 200-m depth or to the depth of exploitation


temperate mild, wet winters hot, dry summers


mountainous with ranges extending into the sea as peninsulas or chains of islands


highest point: Mount Olympus 2,917

lowest point: Mediterranean Sea 0 m

mean elevation: 498 m

note: Mount Olympus actually has 52 peaks but its highest point, Mytikas (meaning "nose"), rises to 2,917 meters in Greek mythology, Olympus' Mytikas peak was the home of the Greek gods

Natural resources

lignite, petroleum, iron ore, bauxite, lead, zinc, nickel, magnesite, marble, salt, hydropower potential

Land use

agricultural land: 63.4% (2018 est.)

permanent crops: 8.9% (2018 est.)

permanent pasture: 34.8% (2018 est.)

forest: 30.5% (2018 est.)

other: 6.1% (2018 est.)

Irrigated land

Total renewable water resources

68.4 billion cubic meters (2017 est.)

Population distribution

one-third of the population lives in and around metropolitan Athens the remainder of the country has moderate population density mixed with sizeable urban clusters

Natural hazards

volcanism: Santorini (367 m) has been deemed a Decade Volcano by the International Association of Volcanology and Chemistry of the Earth's Interior, worthy of study due to its explosive history and close proximity to human populations although there have been very few eruptions in recent centuries, Methana and Nisyros in the Aegean are classified as historically active

Environment - international agreements

party to: Air Pollution, Air Pollution-Nitrogen Oxides, Air Pollution-Sulphur 94, Antarctic-Environmental Protection, Antarctic-Marine Living Resources, Antarctic Treaty, Biodiversity, Climate Change, Climate Change-Kyoto Protocol, Climate Change-Paris Agreement, Comprehensive Nuclear Test Ban, Desertification, Endangered Species, Environmental Modification, Hazardous Wastes, Law of the Sea, Marine Dumping-London Convention, Nuclear Test Ban, Ozone Layer Protection, Ship Pollution, Tropical Timber 2006, Wetlands

signed, but not ratified: Air Pollution-Heavy Metals, Air Pollution-Multi-effect Protocol, Air Pollution-Persistent Organic Pollutants, Air Pollution-Volatile Organic Compounds

Geography - note

strategic location dominating the Aegean Sea and southern approach to Turkish Straits a peninsular country, possessing an archipelago of about 2,000 islands

Greece's Debt

Since the creation of the European Union in 1992 and the subsequent launch of the euro, Greece’s economic relationship with the rest of Europe has been a turbulent one. Greece’s chronic fiscal mismanagement and resulting debt crisis has repeatedly threatened the stability of the eurozone—and the country’s troubles are far from over.

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The ruling military junta, which seized power from Greece’s democratically elected government in 1967, collapses. The Turkish invasion of northern Cyprus three days prior has undermined the Greek government and created divisions in the military establishment. The military calls on exiled former Prime Minister Constantine Karamanlis to return to Greece and lead the transition back to democratic rule.

Under the leadership of center-right Prime Minister Constantine Karamanlis, Greece becomes the tenth member of the European Economic Community. The ECC, established by the 1957 Treaty of Rome as a free trade area known as the Common Market, is the forerunner to the European Union.

The twelve member states of the European Economic Community sign the Treaty of Maastricht, which establishes the EU. In addition to a shared foreign policy and judicial cooperation, the treaty also launches the Economic and Monetary Union (EMU), paving the way for the introduction of the euro. The EMU lays out fiscal convergence criteria for EU countries that plan to adopt the single currency.

The euro is introduced as an accounting currency in eleven EU countries. (Euro banknotes and coins begin circulating three years later.) Greece, however, is unable to adopt the euro because it fails to meet the fiscal criteria—inflation below 1.5 percent, a budget deficit below 3 percent, and a debt-to-GDP ratio below 60 percent—outlined by Maastricht.

Greece belatedly adopts the euro currency. However, the country misrepresents its finances to join the eurozone, with a budget deficit well over 3 percent and a debt level above 100 percent of GDP. It is subsequently made public that U.S. investment bank Goldman Sachs helped Greece conceal part of its debt in 2001 through complex credit-swap transactions.

Greece hosts the 2004 summer Olympic Games, which costs the state in excess of 9 billion euros ($11.6 billion). The resultant public borrowing contributes to a rising deficit (6.1 percent) and debt-to-GDP ratio (110.6 percent) for 2004. Greece’s unsustainable finances prompt the European Commission to place the country under fiscal monitoring in 2005.

The U.S. subprime mortgage market collapses after the housing bubble burst the year prior. The U.S. crisis ultimately triggers a global banking crisis and credit crunch that lasts through 2009, felling global financial behemoth Lehman Brothers and prompting government bailouts of banks in the United States and Europe. As borrowing costs rise and financing dries up, Greece is unable to service its mounting debt.

Pasok (Socialist) leader George Papandreou wins national elections, becoming prime minister. Within weeks, Papandreou reveals that Greece’s budget deficit will exceed 12 percent of GDP, nearly double the original estimates. The figure is later revised upward to 15.4 percent. Greece’s borrowing costs spike as credit-rating agencies downgrade the country’s sovereign debt to junk status in early 2010.

To avoid default, the International Monetary Fund and EU agree to provide Greece with 110 billion euros ($146 billion) in loans over three years. Germany provides the largest sum, about 22 billion euros, of the EU’s 80 billion euro portion. In exchange, Prime Minister Papandreou commits to austerity measures, including 30 billion euros in spending cuts and tax increases.

The European Central Bank (ECB) launches its unprecedented Securities Market Program. The program allows the ECB to purchase government bonds of struggling sovereigns, like Greece, on the secondary market in order to boost market confidence and prevent further sovereign debt contagion throughout the eurozone. Finance ministers also agree on rescue measures worth 750 billion euros, or nearly $1 trillion, for struggling eurozone economies.

Amid public anger over austerity, Prime Minister Papandreou calls for a national referendum on a second bailout agreement under negotiation. However, Papandreou calls off the referendum after the center-right opposition agrees to back the revamped EU-IMF deal. Papandreou is forced to step down, and economist Lucas Papademos is appointed to head a unity government tasked with implementing further austerity and structural reforms.

Finance ministers approve a second EU-IMF bailout for Greece, worth 130 billion euros ($172 billion). The deal includes a 53.5 percent debt write-down—or “haircut"—for private Greek bondholders. In exchange, Greece must reduce its debt-to-GDP ratio from 160 percent to 120.5 percent by 2020. Greece and its private creditors complete the debt restructuring on March 9, the largest such restructuring in history.

In a step toward European fiscal integration, twenty-five EU member states—all but the UK and the Czech Republic—sign a Fiscal Compact treaty mandating stricter budget discipline throughout the union. The agreement includes a balanced budget rule requiring governments to keep deficits below 0.5 percent of GDP and an undefined “automatic correction mechanism" for countries that miss the target.

In a rebuke of the mainstream New Democracy (conservative) and Pasok (socialist) parties, a majority of Greeks vote for fringe parties opposed to the EU-IMF bailout program and further austerity. New elections are called for June, in which the center-right triumphs with 30 percent of the vote, allowing Antonis Samaras to form a coalition. Samaras signals Greece’s continued commitment to the bailout plan.

ECB President Mario Draghi announces an open-ended program to buy the government bonds of struggling eurozone states on the secondary market. The policy shift, coming weeks after Draghi’s vow to “do whatever it takes to preserve the euro," is aimed at calming volatile markets, and the ECB’s strong show of commitment succeeds in bringing down borrowing costs for indebted periphery countries.

Eurozone finance ministers and the IMF agree to a revised aid deal for Greece, including lower interest rates on Greek bailout loans and a debt-buyback program. The new plan allows Greece to cut its debt-to-GDP ratio to 124 percent by 2020, rather than 120 percent, while committing it to bringing its debt levels “substantially below" 110 percent by 2022.

Greece’s Parliament approves unpopular new austerity measures, agreed to as a condition of the ongoing EU-IMF bailout. The legislation include layoffs of some twenty-five thousand public servants, as well as wage cuts, tax reforms, and other budget cuts. The approval opens the way for a new tranche of bailout funds worth nearly 7 billion euros ($9 billion), while labor unions call a general strike in protest.

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Greece returns to international financial markets with its first issue of Eurobonds in four years. Despite an early morning bomb blast, the government raises 3 billion euros in five year bonds, with an initial yield of under 5 percent—a low rate seen as a mark of a return to economic normalcy. In another sign of renewed investor confidence, the offer raises 1 billion euros more than expected.

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Faced with deflation and economic stagnation in the eurozone, the ECB announces a 1.1 trillion euro (more than $1.2 trillion) program of quantitative easing (QE) to spur inflation and growth. Under the program, the ECB will purchase 60 billion euros in financial assets, including sovereign government bonds, each month. Under ECB rules, however, Greek bonds are not eligible.

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The left-wing, anti-austerity Syriza party wins a resounding victory in snap elections, breaking more than forty years of two-party rule. Incoming Prime Minister Alexis Tsipras says he will push for a renegotiation of bailout terms, debt cancellation, and renewed public sector spending—setting up a showdown with international creditors that threatens Greek default and potential exit from the monetary union.

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The Greek government misses its 1.6 billion euro ($1.7 billion) payment to the IMF when its bailout expires on June 30, making it the first developed country to effectively default to the Fund. Negotiations between the Syriza leadership and its official creditors fell apart days before, when Prime Minister Tsipras proposed a referendum on the EU proposals. To stem capital flight, Tsipras had previously announced emergency capital controls, limiting bank withdrawals to 60 euros ($67) per day and calling a bank holiday after the ECB capped its support.

Prime Minister Tsipras bends to European creditors and presses parliament to approve new austerity measures, despite a July 5 referendum in which Greeks overwhelmingly rejected these terms. The agreement comes after a weekend of talks in which a Greek eurozone exit was only narrowly averted and opens the way to a possible third bailout program worth up to 86 billion euros ($94 billion). The ECB resumes some support for Greek banks, but the compromise splits the ruling Syriza party and sets the stage for new elections in the coming months.

The Greek parliament adopts a suite of economic reforms as part of a new rescue package from the EU, the country’s third since 2010. In exchange for the 86 billion euro bailout, which is to be distributed through 2018, EU creditors require Greece to implement tax reforms, cut public spending, privatize state assets, and reform labor laws, among other measures. While the IMF participated in the previous bailouts, the organization refuses to contribute additional funds until the creditors provide Greece “significant debt relief.”

Tensions over Greece’s third bailout grow as the IMF warns that the country’s debt is unsustainable and that budget cuts EU creditors demand of Athens will hamper Greece’s ability to grow. To forestall a crisis that could put the 86 billion euro program in jeopardy, EU representatives agree to more lenient budget targets, but they decline to consider any debt relief. Meanwhile, Prime Minister Tsipras agrees to implement deeper tax and pension reforms even as he faces domestic pressure over a weakening economy and rising poverty.

Greece receives its final loan from European creditors, completing a bailout program begun in 2015, the country’s third since 2010. In total, Greece now owes the EU and IMF roughly 290 billion euros ($330 billion), part of a public debt that has climbed to 180 percent of GDP. To finance this debt, Athens commits to running a budget surplus through 2060, accepts continued EU financial supervision, and imposes additional austerity measures. EU officials hail the bailout as a success, pointing to Greece’s return to growth. Unemployment, too, has fallen, though, at 20 percent, it remains the EU’s highest. The IMF, however, maintains that the Greek economy, which has shrunk by 25 percent since the beginning of the crisis, will likely require further debt relief.

Greek Economics: Drachmas, debt and Dionysius

The poor economic record of Greece goes back a very long way, says Matthew Lynn.

In 1929 the Harvard economist Charles Bullock published a magnificent essay on a monetary experiment conducted by Dionysius the Elder, ruler of the Greek city state of Syracuse from 407 BC until his death in 367. After running up vast debts to pay for his military campaigns, his lavish court and spectacles for the common people he found himself painfully short of ready cash. No one wanted to lend him any more money and taxes were drying up. So Dionysius came up with a great wheeze. On pain of death he forced his citizens to hand in all their cash. Once all the drachmas were collected he simply re-stamped each one drachma coin as two drachmas. Simple. Problem solved. Syracuse was rich again.

Except, of course, it wasn’t. Bullock used it as an early example of why just minting more money out of thin air was seldom a reliable way of creating more wealth. There was, however, another lesson to be learned. When it comes to making a mess of the economy and fiddling the figures the Greeks have been at the top of their game for a very, very long time.

As the rioters storm through Athens, as the beleaguered Prime Minister George Papandreou patches together a coalition government and as the French and German governments wrestle with the second bail-out for their wayward partner in the euro in a little over a year it is worth remembering that this is not just a financial story, but a historical one as well.

If Europe’s leaders had looked more closely at the country’s past they would probably have never allowed Greece to merge its currency with Germany and the other euro-zone members of the EU. Its credit record is truly awful. After the formation of the modern Greek state in 1829 the country went on to default on its debts in 1843, 1860 and 1893. According to calculations by the economists Carmen M. Reinhart and Kenneth S. Rogoff Greece has spent more time in default to its creditors than any other European country. It has been skipping its repayments for 50 per cent of the years since 1800, compared with a mere 39 per cent of the time for the next worst offender, Russia. Indeed, even if you moved it across to Latin America – generally regarded among bond traders as default central – it would still be among the worst offenders. Only Ecuador and Honduras have a worse record of meeting their debts.

One reason for this is that the Greeks simply don’t have much money. All of the southern European countries that are struggling to stay in the euro zone – Spain, Portugal and Italy as well as Greece – are relatively economically backward compared to their richer northern neighbours. In all of them poor quality Mediterranean soils prevented agricultural development and the emergence of the prosperous middle class that drove the Industrial Revolution in the rest of Europe. But Greece was the most extreme example. Cut off by the Carpathian mountains it was far removed from the mainstream of European science and culture. For much of the last millennium it was dominated by the Byzantine Empire – not much known for its industrial prowess. Even after independence it struggled to earn a living for itself.

While much of Mediterranean Europe modernised rapidly in the postwar years, Greece barely caught up. Occupation by the Nazis followed by a civil war didn’t help. During the late 1960s and early 1970s, when much of peripheral Europe was starting to industrialise for the first time, it was ruled by a buffoonish clique of colonels who resisted any form of modernity, either cultural or economic. In a number of ways Greece still remains a pre-industrial economy, dominated by the state, by cartels and by a handful of wealthy families. Few multinational companies have found it possible to do business there.

The interesting question is why anyone thought Greece could survive in a monetary union alongside countries such as Germany, Austria, Holland and France that have always been far richer?

In reality everyone was trying to escape their history. The Germans and the French committed themselves to the euro as the next stage in cementing the European Union together the 1957 Treaty of Rome, the European Coal and Steel Community, Euratom, the EEC, the EC and the earlier monetary union have all been put forward as ways of cementing France and Germany (and others) together. The Germans, and particularly the Bundesbank, knew Greece should not join the euro. But it wasn’t really possible to tell countries they were not welcome in the single currency. It would fatally undermine the whole European project, an ideal to which an entire generation of politicians had committed themselves.

And the Greeks? Like the rest of the financial and political elite in southern Europe, they believed the euro would be a catalyst for modernisation. Replacing the drachma with a new currency would, they argued, be a transformative act which, in a single step, would turn Greece into a vibrant, free-market economy.

But in that respect, as in so many others, the euro was simply not up to the job. Dionysius couldn’t make Syracuse richer by re-stamping the coins. And the European Central Bank couldn’t change the course of a few hundred years of Greek history by enforcing a one size fits all monetary policy. That simple truth is now catching up with all of them.

Matthew Lynn is a columnist for the Wall Street Journal Market Watch and the author of Bust: Greece, The Euro and The Sovereign Debt Crisis (John Wiley, 2011).

Greece Economy

The Greek economy is ranked 42nd largest in the world in terms of nominal gross domestic product during 2012, according to the World Bank. It is also ranked 13th among the economies of the 27 member countries of the European Union. The economy of Greece is based mostly on the service and industry sector, with agriculture providing about 3% of the total gross domestic product of the country. Its industries include tourism, merchant shipping (being the largest merchant marine in the world in terms of total capacity), and a producer of agricultural products.

In the primary sector, Greece is the largest producer of cotton and pistachios in the European Union. Other important agricultural products include rice, olives, tomatoes, watermelons and tobacco. Organic farming has also increased considerably in the country. In the industry sector, the recent crisis hit hard various industries. Indicative industries of Greece include cement, pharmaceuticals, concrete, beverages and beer, dairy and cigarettes. In the tertiary sector of services, shipping has played a key role in the Greek economy since antiquity, and was recently boosted during the 1960s by shipping magnates Onassis and Niarchos. The tourism sector has also been a major component of the Greek economy, especially after the 1950s, ranking the country 10th in the world in terms of tourist expenditure. Recently, various tourism – related organizations, such as Lonely Planet, have included Greece in their “hot” guides and lists.

The Greek economy has suffered from a number of factors, such as tax evasion, which has reached a very high level in recent years. The Great Recession as well as the Greek government – debt crisis only worsened the matter, causing a sharp plunge of the economy of Greece in the past few years. During 2012, Greece negotiated the biggest debt restructuring in history with the private sector, managing to reduce its sovereign debt to somehow more manageable levels.

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