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Understanding the Financial Crisis in Greece

2015-07-07 · explainer · John · 7:41 · watch on YouTube

Topic: World affairs (also: Economics) · mode: News analysis · tags: timely hook

John explains how Greece's debt crisis developed, from joining the euro and fudged deficits through bailouts, austerity and the 2015 referendum, and argues the Eurozone's root problem is its inability to decide how unified it is.

What is said

The parts of the video and what is said in each (★ — how much it matters to the video).

00:00:00 — Greeting; John is back from a trip to Brazil for Cidades de Papel and turns to Greece

  • ★★ John is just back from a crazy, beautiful and exhausting trip to Brazil in support of Cidades de Papel and says he will talk more about it later. — 00:00:01 · Paper Towns (film)

00:00:10 — John's mock credentials; he will not offer solutions, only try to understand how the crisis came to 'Grexit'

  • ★★ John jokes that he was the third best economist among C students at the 1994 Alabama academic decathlon, and says he does not know how the Greek crisis should or will end. (playful, unsure) — 00:00:10
  • ★ John will not offer solutions, only try to understand how things got so desperate that the news media coined the 'horrific' compound word Grexit. — 00:00:22 · Grexit

00:00:32 — Background: Greece, the drachma, joining the Eurozone, the split of monetary and fiscal policy, broken deficit rules and fudged numbers

  • ★★ Greece used the drachma until 2001; on independence in 1832 it brought the drachma back, and in 2001 it joined the Eurozone and adopted the euro. — 00:00:35
  • ★ John says 'drachma' probably meant 'handful', because three thousand years ago a drachma was a handful of six metal sticks used as currency. (hedged) — 00:00:35
  • ★★★ The euro helps trade, but nineteen countries share it: the European Central Bank controls Greece's monetary policy while the Greek government mostly controls its fiscal policy. — 00:00:58
  • ★★ Eurozone countries are supposed to keep annual budget deficits under three percent, but many, including Greece, have broken those rules. — 00:01:17
  • ★★★ Since the mid-1990s Greek governments under-reported deficits and debts; in 2009 a new government announced a deficit of 13.9% of output and admitted earlier numbers were fudged. — 00:01:27

00:01:57 — Causes of the crisis; when deficits are fine (virtuous cycle) and how rising interest rates made a vicious cycle

  • ★★★ Explanations differ: some point to higher labor costs after joining the Eurozone, too much debt from the start, tax evasion, and the 2008 recession hitting Greek shipping and tourism. (hedged) — 00:01:57
  • ★★★ John stresses that government deficits are not always bad: deficit spending that grows the economy and tax base raises revenue, a virtuous cycle. — 00:02:18
  • ★★ As an example, John says the United States has a strong economy and has run a deficit quite consistently for fifty years. — 00:02:29 · United States
  • ★★★ Greece borrowed cheaply after adopting the euro, but the deficit revelations made investors demand higher interest rates, which worsened the deficit and raised rates further: a vicious cycle. — 00:02:36

00:03:01 — 2010 bailout by the troika, contagion fears, German and French banks, austerity and the shrinking economy

  • ★★★ By spring 2010 the European Commission and the IMF gave Greece a 110 billion euro bailout, and the ECB bought Greek debt; the three became known as 'the troika'. — 00:03:09
  • ★★ The bailout was a loan, not a gift, made amid contagion fears as interest rates crept up in Portugal, Ireland and Spain and the Eurozone risked falling apart. — 00:03:25
  • ★★★ Since most Greek debt was owed to German and French banks, John says the big Eurozone governments were in a way lending Greece money to repay their own banks. — 00:03:43
  • ★★★ In exchange Greece adopted austerity, raising taxes and cutting pensions; the deficit fell from 25 billion euro in 2009 to 5.2 billion in 2011, but the economy contracted and tax revenues shrank. — 00:03:57

00:04:30 — 2012 second loan; unemployment, poverty and hunger in Greece; Europe less exposed than in 2010

  • ★★ With no sustainable economy, Greece got another 130 billion euro loan from the troika in 2012. — 00:04:30
  • ★★★ Despite signs of recovery, Greek unemployment is over 25 percent, 30 percent live in poverty, almost one in five cannot afford adequate food, and the depression matches the US Great Depression. — 00:04:41 · United States
  • ★★ John emphasizes that economic crises are also humanitarian crises. — 00:04:41
  • ★★ For Europe things are better than in 2010: private European banks hold much less Greek debt and Ireland and Portugal are healthier, so a Greek collapse or exit would be less catastrophic. — 00:05:00 · Europe, Grexit

00:05:17 — New leftist government rejects austerity; troika stops payments; July 5 referendum votes no; bank liquidity crisis and possible Grexit

  • ★★★ A new leftist Greek government elected at the end of last year (2014) rejected austerity, arguing, as John says many economists would, that it fails because the economy shrinks as fast as the deficit. — 00:05:17
  • ★★★ The troika stopped loan payments; after negotiations a referendum on continuing austerity was held, and on July 5th Greeks voted overwhelmingly no, symbolically, as the offer was withdrawn on June 30th. — 00:05:33
  • ★★★ Without payments Greek banks face a liquidity crisis: they may have only 500 million euro left, about 45 euro per person; many ATMs are empty and others give only 10 euro notes. (hedged) — 00:05:57
  • ★★★ John forecasts that if this continues Greece will have to print an alternate currency for retirees and government employees, the so-called Grexit, with unknown consequences. — 00:06:15 · Grexit

00:06:32 — Root problem: a transnational currency whose members answer to their own citizens; the Eurozone needs an idea of 'us'; sign-off

  • ★★★ Normally a country in Greece's situation would print money, but the ECB decides that; the root problem is a transnational currency whose members each answer to their own citizens. — 00:06:32
  • ★★ Germany does not want to print money or send more to Greece, seeing the debts as not its fault; many Greeks feel the bailouts only bought time for other nations and banks. — 00:06:54
  • ★★★ John calls the inability to decide how unified they should be the real existential problem of the Eurozone. — 00:07:16
  • ★★★ John concludes there is much blame to share, but without listening to others' narratives and imagining all members as an 'us', Europe cannot share a continent, let alone a currency. — 00:07:23 · othering, Europe

In the description and comments

  • ★ John lists the video's sources: Anil Kashyap's primer on the Greek crisis, The New York Times' introduction, Wikipedia's history of the European debt crisis, and The Economist's coverage, which he calls excellent, of Greece, the bailouts, the debt and how the banking system works under capital controls. — video description · The New York Times, Wikipedia
  • ★★ John thanks Rosianna for all her help gathering facts and images for the video, adding that all mistakes, as always, are his own. — video description · Rosianna Halse Rojas

Threads in this video

Where the stories that moved here went next

Mentioned

Central: Austerity · Eurozone · government budget balance · Greece · Greek government-debt crisis · Troika

Also: People: Hypatia · Socrates

Works: 300 · Paper Towns (film)

Organizations: European Central Bank · European Commission · International Monetary Fund

Terms: Grexit

Concepts: Drachma · Euro · Fiscal policy · Food security · government debt · Interest rate · Labour cost · Liquidity crisis · Monetary policy · othering · Tax evasion · Unemployment · vicious circle

Places: Acropolis of Athens · Brazil · Europe · France · Germany · Ireland · Portugal · Spain · United States

Events: 2015 Greek bailout referendum · Great Depression · Great Recession · United States Academic Decathlon

Only in the description or credits: Anil Kashyap · Rosianna Halse Rojas · The Economist · The New York Times · Wikipedia

Also centred on Austerity: DOGE Is Not Cutting Government Spending

Also centred on government budget balance: Hey! You! Fix the Budget! · Understanding the National Debt and Budget Deficit · Understanding the Tax Plans of Donald Trump and Ted Cruz · Understanding Donald Trump and Hillary Clinton's Health Care Reform Proposals

Also centred on Greece: The Greek Debt Crisis Explained in Four Minutes

Also centred on Greek government-debt crisis: The Greek Debt Crisis Explained in Four Minutes

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