What You Need to Know About the Greek Debt Crisis

07/07/2015 12:28 EDT | Updated 07/07/2016 05:59 EDT
Greece's Prime Minister Alexis Tsipras delivers a speech during a rally organized by supporters of the No vote at Syntagma square in Athens, Friday, July 3, 2015. A new opinion poll shows a dead heat in Greece's referendum campaign with just two days to go before Sunday's vote on whether Greeks should accept more austerity in return for bailout loans. (Yannis Behrakis/Pool via AP)

Read this. Then go impress everyone.

What You Already Know:

Wall Street melts down in 2008. Greece announces financial troubles and borrows €110 billion in 2010. It isn't enough, so a second bailout package brings the total loan to €246 billion by 2016. In early 2015, Alexis Tsipras of the radical left Syriza party is sworn in as the new prime minister with a plan to refuse any more loans. On June 28, the Greek government announces bank closures. Two days later, they miss an IMF payment and default on their debt. On July 5, Greece votes "no" in a referendum deciding whether to take a new bailout deal from international creditors.

Debt = Government Spending > Government Income

Greece just isn't that into paying taxes. Their government's not a regular mom -- it's a cool mom.

What You Probably Don't Remember:

There's so much more drama than we thought.

First of all, Greece just had its first referendum since 1974 deciding if the country will accept a new bailout offer. What was the last referendum about? Oh, just the choice between being a kingdom or a republic. Needless to say, this one caught them a bit off guard. To top it all off, they were only given eight days to decide. E-i-g-h-t. The current leftist government was pushing for a hard "no." We're guessing it was because their campaign slogan might as well have been: We would rather die than take another bailout. Greek voters rejected the bailout offer.

Cut to the early 90s (think lots of denim and Will Smith). Greece has a deficit of 13 per cent of their GDP. Trust us, that's a lot. But by 1998, Greece says they were able to bring down the deficit to less than 3 per cent of their GDP.

Conveniently enough, having a deficit of less than 3 per cent is one of the requirements of joining the Eurozone (which means that you get to use the Euro, take advantage of low interest rates, and generally have a great time). The EU says Greece's financial information checks out, so Greece gets the Euro. Everything's coming up Milhouse for Greece.

This is when things get juicy. It turns out that Greece has been misrepresenting (a fancy word for lying) its financial data since 1998. They actually have financial troubles that date all the way back to the 80s. (Think less Will Smith and more Alf).

Here are some of the things that have snuck out of Pandora's box:

~2001: Greece doesn't document a significant purchase of military equipment until after the thing is delivered. The purchase is made before Greece gets the Euro and the delivery (along with the paper trail) happens after the fact.

2001: Goldman Sachs uses swaps with phony exchange rates to make €2.8 billion of Greek debt disappear. The EU claims to know nothing about this until 2010.

Needless to say, Greece is being sneaky. Or stupid?

The jig is up after the 2004 Summer Olympics in Athens, when Kostas Karamanlis, the prime minister of the new conservative government, calls bull-poop on the whole thing. Karamanlis says that the previous socialist government actually misrepresented Greece's financial information in order to get the Euro. Probably because nobody wants a currency called drachma. (/Drak-chh-ma?/ /Drak-may?/ /Drama?/ /Dracula?/).

The real question is: Who dropped the ball?

December 2004, Costas Simitis, Greece's previous prime minister and the guy in charge when this whole thing went down, writes an open letter to the Financial Times. The letter calls out Eurostat, the EU statistical office, for being bad at their job and for letting the new government dig around in his dirty laundry with a biased lens. He's also pretty pissed at the new government for embarrassing Greece on the world stage. (Dude, bros before Euros!).

Eurostat responds with a letter to the editor with a more elegant mea culpa. The letter admits that mistakes were made when accounting for Greece's financial deficit and that the EU's system for monitoring countries' fiscal data will have to improve.

Basically, Greece's new government points the finger at the old government and makes the country look pretty shady to the rest of the world. Then the old government passes the buck to the EU. Soooo, it looks like we probably could have done a better job investigating Greece's finances than the European Union did. What does that say about the EU? That they probably didn't do so well in first year Econ.

So, Greece lies about debt to get the Euro. Then they expose their little white misrepresentation. The EU is taking a nap the whole time. In one fell swoop, both Greece and the European Union lose credibility in the eyes of the rest of the world.


Why you should care:

We know it sucks, but just pay your taxes.

Follow us at The Path if you want to keep impressing everyone.


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