What Should You Know About the Greece Financial Crisis?


Quick Answer

The Greek financial crisis erupted in 2009 when Greece announced the enormity of its budget deficit. Pressured by the European Union and other creditors, Greece instituted numerous austerity measures to obtain billions of euros in bailout packages, attempt to bring its budget into balance, and avoid a European and possibly global financial crisis. In July 2015, Greece came close to default and withdrawal from the Eurozone, but it instituted further austerity measures and received another bailout from the EU.

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Full Answer

The roots of the Greek financial crisis were in the government's lavish spending, especially for its bloated pension system that absorbed a significant portion of the gross national product, and its inability to raise enough revenue to cover its expenses. Tax evasion was rampant, and the government ran the state-owned utilities inefficiently. Greece adopted the euro as its currency in 2001 and accumulated debt that it was not able to repay. In 2004, it admitted that it lied about its criteria for admission to the Eurozone, but the EU imposed no sanction at that time. The EU, the International Monetary Fund, the European Financial Stability Facility and individual countries in the EU all contributed towards the Greek bailout effort but demanded that Greece impose stringent austerity measures as the price of the help.

Austerity caused many hardships on the Greek people, many of whom had become dependent on government pensions for subsistence. Unemployment rose, and the Greek economy continued to decline, making it more difficult to pay off the debt. In late Sept. 2015, after winning a snap election, the Greek government worked on creating further reforms to privatize government businesses, streamline the pension system and reform the tax code.

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