Greece why did it collapse

Pension and wage payments proceed as normal, as does internet banking and debit card transactions. The basic reason behind the rules is to prevent bank runs. If people take too much cash out of the country's banks, then they'll cease being able to make loans, and the country will fall into a financial crisis. But if you're an individual Greek citizen, you have strong reasons to want to take your money out.

Deposits could be raided to help keep banks solvent, as happened in Cyprus. Or Greece could abandon the euro, convert all deposits into its new currency probably the drachma, the country's pre-euro currency , and then devalue that currency dramatically. It really bears repeating what a humanitarian catastrophe Greece is enduring. Twenty-five percent of people are unemployed.

Youth unemployment is near 50 percent. Hunger among Greek children has risen. And the economy is set to grow a paltry 0. People will continue to endure immense suffering for years if austerity does not end. Greek leaders need to do something — anything to make austerity less severe is desirable.

If Greece were allowed to run a budget deficit and spend on programs to create jobs and offer relief to the most desperate citizens, then its social crisis would lift. Fiscal stimulus works, and if a country has ever needed it, it's Greece right now. But the terms of Greece's bailout forbid it.

If the Europeans don't relent, leaving the euro may just be the best option left. In the short term, this would be a rough path. Very, very stringent capital controls would be needed to keep banks solvent, and if they weren't enough, an all-out financial crisis would ensue. A lot of wealth would be wiped out as the value of drachma-denominated assets plummeted. There's a chance of dangerous inflation. But leaving the euro at least provides a path toward an actually growing economy for the country sometime in the next decade.

The Greek people would finally have control over their monetary policy, letting them devalue their currency, boost exports, and get back on track.

If the referendum passes, then, assuming European lenders stick by their old offer, Greece goes back to austerity and muddles along the way it has been. But that may not be a safe assumption. It's not at all clear that the Europeans' last offer remains on the table. Greece isn't allowed to print euros, but it could declare that the country has two official currencies and start printing the other one and using it to shore up banks, pay bills, etc.

That way, it wouldn't technically leave the euro. Euros would still be legal tender. But Greece could get most of the benefits of leaving the euro.

If the referendum fails — or if nonpayment of the IMF loan or some other catastrophe happens before the referendum and forces dramatic, immediate action — things are even less clear. The European Central Bank currently provides emergency loans to Greek banks to keep them from failing.

It will likely stop doing that if Greece stops cooperating. That means Greece has to do something to stop Greek banks from running out of money and collapsing. At best, that'll look something like the capital controls that have already been implemented. Those could theoretically be enough to keep money in Greece and the banks humming along, even without European support. A "bail-in" in which money is taken from depositors is also possible.

It'd be a painful adjustment, but it lets Greece get out of its depression the same way the US, Canada, the UK, Sweden , Israel , and other countries with their own currencies got out of the financial crisis: through big, aggressive monetary policy.

Greece would be the first country to leave the euro, a disastrous result for the project of European integration as a whole, not least because it could embolden voters in other struggling countries like Spain to elect left-wing or populist right-wing governments and try to leave the euro themselves.

There is another option, yes. It's not one that European policymakers are really considering, but perhaps they could: Become more like the United States. Here in the US, as in Europe, we have states with weaker economies that require endless financial assistance. Only in the US we don't call them bailouts, and we don't treat it as a crisis. Every year in the US, richer states pay more in federal taxes than they get back in federal spending, and poorer states get more in federal spending than they paid in federal taxes.

But we don't consider that money a bailout, and we don't demand that South Carolina impose crushing austerity measures. The arrangement is quite stable; it's been well over years since South Carolina last formally considered an exit from the union. Now, the US is a political union as well as an economic union, and the EU is only the latter.

But the goal of European integration is to get it there, and one thing that entails is real fiscal union, including huge, unlimited, never-ending transfers from rich areas of the union to poor ones. It's politically tough to stomach, but that's the deal. If European lenders really cared about the European project, they'd be trying to persuade their countrymen to move closer to European super-statehood, big transfer to Greece and all, rather than punishing Greece.

And the more spending and tax policy Europe takes on as a whole, the less it has to rely on the Greek government's poor tax collectors and corrupt bureaucrats.

The reforms the lenders want so desperately would come naturally. They just need to lend Greece a hand. Our mission has never been more vital than it is in this moment: to empower through understanding. Financial contributions from our readers are a critical part of supporting our resource-intensive work and help us keep our journalism free for all.

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We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Economy Economics. Key Takeaways The Greek debt crisis is due to the government's fiscal policies that included too much spending. Greece's financial situation was sound when it entered the EU in the early s, but deteriorated substantially over the next thirty years.

While the economy boomed from , higher spending and mounting debt loads accompanied the growth. By the time of the financial crisis, the jig was up and Greece's debt loads became too big to handle—austerity measures were put in place shortly thereafter. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

Related Articles. National Debt Explained: History and Costs. Partner Links. Related Terms Learn About the European Sovereign Debt Crisis The European debt crisis refers to the struggle faced by Eurozone countries in paying off debts they had accumulated over decades. It began in and peaked between and The Greek Drachma was an ancient currency unit used in many Greek city-states. Was it blindness?

Or just clumsiness? Europe is currently experiencing the consequences of its mistakes — and, to judge from the policies of its representatives, persists in failing to comprehend. Relations between Europe and Greece have become more fragile as a result.

Greek society is capable of mobilizing the inherited structures and traditional institutions that the dream of an all-bountiful state had overshadowed: family, neighbourhood, Church. The halt to the flow of money will lead to a reduction or even disappearance of illicit networks within the state.

The difficulties will clean up the political landscape. Penury is painful but good for you. In five to ten years, Greece will have followed the same route as Turkey did in the first decade of this century. Contrary to appearances, the principal aspect of the Greek problem for Europe is not economic but geopolitical.

With its never-ending series of xenophobic stereotypes, the European press has resurrected images of an arrogant, scornful, dominating West.

The previous Greek government did not doing anything to improve matters by blaming European diktats, whether real or imagined, for the austerity measures.

Placing the Greek administration under the supervision of European experts is a delicate operation that ought to be seen as a contribution to the effective running of the state. Nevertheless, it is being handled in an insensitive fashion that is already provoking violent reactions. Finally, the unavoidable privatizations seem more and more like a sequestration of national wealth by foreign groups and Greek oligarchs who control the national press — the very people held responsible for the suffering of ordinary people.

Many are beginning to compare it to the Turkish invasion of Cyprus of , which brought political change but at a very high cost. Default, social explosion, conflict with Turkey? One way or another, we must expect a painful breakdown that risks triggering a wave of anti-European or even anti-western feeling. The western Balkans are not stabilized. It is difficult for Serbia to forget its humiliation over Kosovo. Turkey is increasingly turning away from the West. The weakening of American influence in the Middle East and the Arab Spring are creating new uncertainties.

Russia and China are building up their networks and their influence in Cyprus and in Greece. Any resurgence of anti-western feeling in Greece would do nothing to improve this situation. It is certainly not the time for Europe to agree to additional economic concessions; this would just reinforce the slippage that has characterised previous decades in Greece.

Instead, closer attention should be paid to relations with the Greek people and their political leadership. Only cooperation between responsible, legitimate Greek politicians and European administrators sensitive to the cultural aspects of European integration can save the situation. Unlike leaders of large countries, who often have no knowledge of the culture of those with whom they are dealing, or who, worse still, argue in terms of received ideas, political leaders of small countries tend to have excellent knowledge of European or American culture.

Understanding the other person allows you to tailor what you say to what they can readily understand, to present ideas that are easy to assimilate and to exploit weaknesses or sensibilities. The aim of opportunist administrators is to gain sympathy by presenting themselves as defenders of western values in the face of a people that is backward, corrupt or fanatical.

Their failures, their moral and political sins simply stoke the fires of the anti-western forces. The United States saved Greece from the Communist danger at the end of the s and helped it to rebuild itself. American support for the dictatorship of the Colonels, who were docile and flattering, little by little turned Greek public opinion into violent anti-Americanism. With the fall of the Colonels in July , the danger of a return to anti-westernism in Greece was very real.

The situation was saved in extremis. Constantine Karamanlis, in self-imposed exile in Paris, maintained a distance from both the Colonels and the anti-western Left. He was pro-western and pro-European; American diplomats disliked him because of his warnings, his criticisms and his independence. Karamanlis and the French president succeeded in breaking down the wall of incomprehension that stood in the way of relations between East and West. Greece was saved from yielding to a temptation that, fifteen years before the fall of the Berlin Wall, would have taken it a long way from Europe.

The West avoided a serious geopolitical and geo-strategic crisis in the eastern Mediterranean. In Europe discovered how troublesome a small country can be whose economy accounts for less than three hundredths of that of Europe as a whole. The discussion about the contradiction between monetary union and political fragmentation is just one aspect of this process of questioning.

Alone, this discussion can only lead to a dead end. Simply adding to the misunderstandings between the various cultural components of the European Union, instead of coming to terms with them, makes the prospect of political union ever more remote. The choice facing Europe is clear: to pursue its process of enlargement or retreat from it by dividing itself geographically into sub-groups defined by economic criteria. If the second option is followed, the dangers that the founding fathers of Europe aimed to prevent will rear their heads once more.

In order to continue to move forward, to fulfil the dream of a greater Europe extending to the Mediterranean, a change of paradigm is essential. In order to integrate ever greater cultural diversity, there must be an effort at opening up in terms of ideas and identities. Admittedly, there is a high price to pay in spiritual terms. But, in a changing world, one increasingly populated by new powers that draw their strength from their cultural difference with the West, there is no other solution if we are to avoid the decline that was already being foretold in An enigma in regional geography], in Michel Foucher ed.

Want to hear a human voice? Listen and subscribe wherever you get your podcasts. The European response to coronavirus so far has been focused on nation states and citizens, leaving stateless refugees without means of prevention. Overcrowded and underserved camps have posed a health hazard already before the virus. Perception and reality Greece has a central position in the European imagination. The nation If we are to go beyond the stereotypes we must first question the validity of the Westphalian model as it applies to Greece.

The territory According to the Westphalian model, nation and state fall within a clearly-defined perimeter that determines the national territory. The role of Europe Comparing European illusions with historical and geographical realities reveals the origin of these misunderstandings. An anti-western Greece?

Greece and Europe must today take their inspiration from this precedent. Moving forward, opening up In Europe discovered how troublesome a small country can be whose economy accounts for less than three hundredths of that of Europe as a whole. Greece eurocrisis. The EU: Broken or just broke? Nadia Urbinati. Obrad Savic. Eric Bonse. David S. Stefan Auer.