6 - Why does Greece need multiple bailouts?

Greece became the center of Europe’s debt crisis after Wall Street imploded in 2008. With global financial markets still reeling, Greece announced in October 2009 that it had been understating its deficit figures for years, raising alarms about the soundness of Greek finances.

Suddenly, Greece was shut out from borrowing in the financial markets. By the spring of 2010, it was veering toward bankruptcy, which threatened to set off a new financial crisis.

To avert calamity, the so-called troika — the International Monetary Fund, the European Central Bank and the European Commission — issued the first of two international bailouts for Greece, which would eventually total more than €240 billion.

The bailouts came with conditions. Lenders imposed harsh austerity terms, requiring deep budget cuts and steep tax increases. They also required Greece to overhaul its economy by streamlining the government, ending tax evasion and making Greece an easier place to do business.

Greece’s 3 Bailouts Timeline

2 May 2010

The IMF, Greek Prime Minister Papandreou, and other eurozone leaders agree to the First bailout package for €110 billion ($143 billion) over 3 years. The Third austerity package is announced by the Greek government.

21 February 2012

The Second bailout package is finalized. It brings the total amount of eurozone and IMF bailouts to €246 billion by 2016, which is 135% of Greece's GDP in 2013.

14 August 2015

Greek parliament approves the package of measures for the third bailout package.

Why does Greece need multiple bailouts?

The money was supposed to buy Greece time to stabilize its finances and quell market fears that the euro union itself could break up. While it has helped, Greece’s economic problems have not gone away. The economy has shrunk by a quarter in five years, and unemployment is about 25 percent.

The bailout money mainly goes toward paying off Greece’s international loans, rather than making its way into the economy. And the government still has a staggering debt load that it cannot begin to pay down unless a recovery takes hold.

The government will now need to continue putting in place deep economic overhauls required by the bailout deal Prime Minister Alexis Tsipras brokered in August, as well as the unwinding of capital controls introduced after political upheaval prompted a run on Greek banks.

Greece’s relations with Europe are in a fragile state, and several of its leaders are showing impatience, unlikely to tolerate the foot-dragging of past administrations. Under the terms of the bailout, Greece must continue to pass deep-reaching overhauls, many of them measures that were supposed to have been passed years ago.

Explaining Greece's Debt Crisis. (2016, June 17). Retrieved from https://www.nytimes.com/interactive/2016/business/international/greece-debt-crisis-euro.html

Greek government-debt crisis timeline. (2017, December 23). Retrieved from https://en.wikipedia.org/wiki/Greek_government-debt_crisis_timeline