As austerity and graft gnaw, crisis-stricken Greece defies expectations

Q. What caused the economic crisis? 

Greece’s fiscal woes were precipitated by the global financial meltdown of 2008, but founded in fundamental weaknesses in the Greek economy. The main problems were a high level of debt and a large budget deficit. The Great Recession gradually diminished Greece’s ability to borrow from international markets, forcing it to seek financial assistance.

Greece has so far received more than €325 billion ($345 billion) in bailout loans, one of the largest financial rescue packages in history. Aid has come from the so-called troika: the International Monetary Fund, European Commission, and European Central Bank.

The policies implemented have resulted in an unemployment rate above 20 percent, with a drop in economic output of about a third – akin to the decline in the United States during the Great Depression of the 1930s.

“Lots of people say Greece has been imposing very austere policy,” says Lucas Papademos, Greece’s prime minister from 2011 to 2012, but, he explains, creditors want “assurances they will be paid back,” along with economic adjustments to address the imbalances that led to the situation in the first place.

The former prime minister wonders whether perhaps the “magnitude of the medicine” was too much.

Q. Are Greece’s internal troubles solely economic?

In short, no. As Constantine Arvanitopoulos, a former minister of education for Greece, put it this fall, “the crisis is primarily a political and constitutional one.” Talking of corruption at “all levels of the social pyramid,” he lamented that the Greek state had become a “trophy for partisan politics.” Mr. Arvanitopoulos took part in a panel discussion at an event titled Greece’s Turn?, hosted by the Fletcher School of Law and Diplomacy in Medford, Mass.

Certainly, the political landscape has been in flux since the debt crisis struck. After the interim government of Mr. Papademos negotiated the second bailout package and completed implementation of the first, a coalition emerged, the first time in almost four decades that one of the two major parties did not hold the reins of power.

Two and a half years later, in January 2015, Greeks voted in the Coalition of Radical Left, commonly known as Syriza, which campaigned on an anti-austerity platform. That July, Prime Minister Alexis Tsipras called a snap referendum to vote on conditions attached to the third bailout package. The people spoke, overwhelmingly rejecting the agreement. But faced with the prospect of economic collapse, the prime minister did a U-turn and accepted a deal. In elections that September, Syriza won again, this time taking an opposite stand, promising to implement austerity measures.

Q. What about ‘Grexit’?

Grexit is the scenario in which Greece leaves the eurozone – distinct from “Brexit,” which is Britain’s divorce from the European Union. Most observers agree that in the summer of 2015, Greece and the eurozone came within a whisker of embracing this reality.

“Together, we have looked into the abyss,” said Jean-Claude Juncker, president of the European Commission, in August 2015, but “Greece is and will irreversibly remain a member of the Euro area.”

Some analysts now believe the possibility of Grexit looms again – when Europe is already groaning under the burden of Brexit, not to mention the migrant influx and a spate of terrorism.

Such a move might not be in Greece’s interest, either. “It is inconceivable ... to imagine circumstances where Grexit would be good for Greece,” says Kyriakos Mitsotakis, president of the New Democracy party and leader of the opposition in the Greek Parliament. Mr. Mitsotakis and Papademos both delivered speeches at the Fletcher School event.

Q. How are relations with Turkey?

Turkish President Recep Tayyip Erdoğan expressed regret in September over the 1923 Treaty of Lausanne, in which he said Turkey “gave away” islands to Greece. This has triggered anxiety about the countries’ relationship, but as James Stavridis, a former supreme allied commander at NATO and now dean of the Fletcher School, explains, Mr. Erdoğan has more pressing matters to consider.

“I think Erdoğan does not wake up every morning worried about Greece,” he says. “He has bigger problems on his hands – a restive Kurdish population, [Islamic State] terrorist incidents, as well as a massive civil war on his border” in Syria.

Yet as Mitsotakis points out, the bilateral relationship depends largely on that between the EU and Turkey – which, in turn, rests in no small part on the refugee deal between those two entities. But whatever transpires, Mitsotakis remains “cautiously optimistic,” saying that Greece and Turkey are “bound by history and geography to live together.”