Greece joined the euro in 2001. This gave it the right to print/mint euro currency, as well as to issue Greek sovereign debt in euros. The second is important because issuing euro debt is like having access to a giant EU credit card–payment was at least implicitly guaranteed by every member of the EU, not just Greece.
Greece probably didn’t meet the criteria of economic health necessary to qualify to join the euro. Everyone in the EU seems to have known this at the time but thought that having the cradle of Western intellectual and political history in the euro was symbolically important.
In 2009, the ruling party lost an election. The new administration discovered, and announced to the world, that Greece had been systematically falsifying its national accounts–official reports of the country’s fiscal health and growth–for years. Greece’s apparent prosperity during the opening years of the 21st century turned out to be a combination of lies and living beyond its means, funded by large-scale euro bond issuance. Most observers agree that Greece run up more debt that it can ever possibly repay.
Negotiations between Greece and its creditors are at an impasse. Broadly speaking, the EU and IMF want to see structural economic reforms (which may prevent a repeat of the country’s woes) in Greece before any debt forgiveness. Greece, whose current government has already reversed some of the few reforms implemented over the past six years, wants debt forgiveness first, talks about structural reform later.
The EU put a take-it-or-leave-it offer on the table about a week ago. The Greek government has decided to call for a national referendum vote on the issue, scheduled for Sunday. In the meantime, it has shut down its banks, so no one can take their money out of the country.
There are some odd technical issues with the referendum. For example, one political party is suing to stop the vote, saying it’s unconstitutional. It’s also coming at the start of vacation season, so it’s not clear whether people can get home to vote, especially with atm withdrawals limited to €60 a day.
Domestic Greek polls indicate that likely voters favor accepting an EU bailout plan by 52/48–even though the administration is campaigning against it. A “No” vote probably means Greece leaves the euro, and maybe the EU as well.
I have mixed feelings about the negotiations themselves. On one hand, I’ve got to admire the ingenuity and determination of the Greek side in trying to get the best possible deal. On the other, everything I’ve I’ve read and heard to make me think Greece regards negotiation as a blood sport. The point is not to get a fair deal, but to suck the other side dry and toss the husk to the side of the road. –even a little bit–about the needs of the other side. It’s turned the negotiations into a fool me once, fool me twice situation, in my view.
I think the current Greek administration may have done a huge amount of damage to the country’s long-term economic prospects by trying so hard.to wriggle out from responsibility for the current crisis.
Ironically, the better outcome for the EU might be for Greece to vote to leave the euro. The resulting damage to the Greek economy will be enormous, I think. Seeing what happens will likely silence separatist movements elsewhere in the EU.