The Greek crisis is essentially a déjà vu of the subprime loans catastrophe, which hit the US in 2008, leaving the global economy in disarray. The obvious difference is that, in this case, the insolvent borrower is a state. Other than that, the similarities are striking: the sudden realisation that the Greek debt was ‘toxic’ initiated a crisis of trust in the financial system, due to the uncertainty over the exposure of major lending institutions to bad loans and raised doubts regarding the solvency of other developed states in the eurozone. The quality of sovereign bonds portfolios became ‘anyone’s guess’, or, to put it more precisely, anyone’s speculation. The immediate effect of this crisis of trust was the rise of interest rates in interbank and sovereign loans, resulting in a liquidity shortage and, perhaps, a double dip recession in 2012.

The fears were, in many respects, self-fulfilling: skyrocketing interest on sovereign bonds and declining growth rates due to the credit crunch made it virtually impossible even for solvent state-borrowers to service their debt without suffocating their economies. Credit rating agencies, notorious for their utter failure in 2008, exacerbated the panic mood through a wave of downgrades even to bonds, which, given the state of the public finances in the issuing countries, were obviously not ‘subprime’. At the time this essay was written, Spain and Italy were standing at the edge of the cliff, while France and Belgium were reluctantly queuing behind them.

Leaving aside the troubling questions and issues regarding the structure and founding premises of the global financial system in general and the Eurozone institutions in particular, I will instead focus on the much more ‘manageable’ case of Greece. The questions I will be attempting to answer are, how did Greece get into this mess and how it can get out of it, who is responsible, what impact does the crisis have on the political situation in the country, what is expected from the EU, how are the measures of the so-called Troika (IMF, ECB, EU) perceived in Greece and what impact do they have on the political attitudes of the Greek people.

A tale of stereotype

With a few notable exceptions, the coverage of the Greek financial crisis in international press is filled with stereotypes, which mud the waters and constitute more of a nuisance rather than a helpful analysis of what is really going on in the country. A common narrative, for example, is that Greeks ‘live beyond their means’. However, Greeks as a whole, meaning the state, the people, financial institutions and corporations, are not as indebted as the stereotype suggests. An authoritative study by McKinsey showed that, in 2009, when the sovereign bonds crisis broke out, Greek’s total debt (public and private) stood at 230% of GDP, half of what it was in the UK (466%) and much less than it was in Germany (285%) and France (323%). Greece also fared much better than the UK, France, Belgium, Portugal and, obviously, Ireland, when it came to total external debt.

Greece’s low total debt levels, at least at the onset of the crisis, can be explained by the fact that private and corporate debt in the country is negligible by Western standards. Greek banks were also careful to avoid exposure in the US, Irish and Spanish real estate bubbles as well as the subprime loans market. On the other hand, even if the Greek people and businessmen did not borrow much, this is not to suggest that they are not collectively responsible for the debt accumulated by their democratically elected governments, which stood at 129% of GDP in 2009, at the beginning of the crisis and is projected to climb to 162% of GDP at the end of 2011 according to the European Commission. The problem is that a large part of the population in the country does not accept they should be held accountable for the debt of the state, hence the reactions to the austerity measures adopted in the framework of the EU-IMF bailout agreement. Indeed, apart from the 750,000 or so public sector employees who enjoy the benefits of permanent contracts, often decent salaries (depending on the post) and early retirement, the rest of the society expects to receive nothing else by the state other than poor public services, bribery demands and obscene bureaucratic obstacles to their business. The usual response to this is an ‘I don’t expect anything by the state, I don’t give anything back to the state’ attitude. 



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Dr. Nikos Chrysoloras is a journalist at the Greek daily Kathimerini, where he is currently managing the opinion pages. He studied International Relations at the University of Wales, Political Theory at the University of Essex and Government at the London School of Economics, where he was awarded his PhD with a full scholarship. He has also worked as a columnist for the business news website Reporter.gr and as a researcher for SKAI TV in Greece and taught Political Theory and Media History in London and Athens respectively. The views expressed here are personal.

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