Greece dominates international and financial news these days. There is talk of government bailouts and restructured debt, and now a default could happen on such a scale as to send the entire global economy into another recession.
How did Greece get to such an unmanageable position? Here is a primer on the chain of events that led Greece to where it is today:
Change of Government -- Military rule ended in 1974 when a multi-party democratic government was reinstalled. In order to appeal to left-wing forces, the government undertook massive social program spending, created public-sector jobs with generous pension and wage programs. These spending programs by successive governments created massive budget deficits and large national debt that had to be funded from external sources that were available at low interest rates.
Booming Economy -- According to the Greek Embassy website, Greece had the fastest growing economy in Europe during the early years of the last decade, attracting large amounts of foreign investment. This investment and low bond rates kept interest rates low for government borrowing and spending programs. This continued a rapid expansion of public works projects, government hiring and major capital expenditures. All that ended when the recession shrank the ability of banks to loan money and stifled foreign investment. Interest rates skyrocketed from 4.5 percent in 2007 to 26.7 percent in 2011, according to a Bloomberg analysis. At the same time, government revenues continued to shrink. By 2010, Greece was no longer able to make minimum debt payments and still found it needed more capital for current expenditures.
Bailout -- Rather than risk default of this size, European Union and International Monetary Fund members constructed a multi-step bailout program that would inject new capital into the Greek treasury in exchange for a program of austerity measures to shrink the government's spending and deficits. As reported by BBC at the time, these cutbacks were opposed by the general population, and government officials lacked the willpower and political muscle to impose them.
Falsifying Official Reports -- Since the bailout was contingent on enacting austerity measures, the Greek government began a calculated series of maneuvers to restructure the debt, including paying Goldman Sachs over $300 million to hide the official numbers from the EU and IMF, according to Business Insider. This led to the need for a second round of bailout financing. This time, tougher austerity measures were required which resulted in wide-spread protests in major cities according to GuardianUK. The government elected to hold a national referendum before accepting the bailout.
True Democracy -- Prime Minister George Papandreou governing coalition holds a slim two-seat majority in Parliament. In recent days, members of his own coalition have rejected that latest bailout program and threatened the government with a vote of confidence on Friday. Assuming Papandreou's government can hold power, his cabinet elected to hold a national referendum on whether Greece should remain a member of the eurozone or return to a sovereign currency. That question sent global stock market plummeting on Tuesday and forced French President Nicolas Sarkozy and German Chancellor Angela Merkel to withhold any further aid until the referendum is completed. Associated Press reported Thursday that opposition lawmakers now demand Papandreou's resignation so a caretaker coalition government can lead the country through the crisis until new elections.
Dan McGinnis is a freelance writer, published author and former newspaper publisher. He has been a candidate, campaign manager and press secretary for state and local political campaigns for more than 30 years.