How Greece got into a financial mess
Greek Prime Minister George Papandreou speaks during a press conference at the European Union summit at the European Council headquarters in Brussels.
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Kai Ryssdal: There weren't any protests or strikes in Athens, Greece today. It's amazing what a $41 billion loan package will do for you. The European Union has finally decided it's going to have to put up cold hard cash to protect the Greek government, and by extension, the euro from default -- $41 billion, as I said, is there for the taking. The IMF is offering another $20 billion if needed.
One thing that's not entirely clear is how more debt will help the Greeks with their debt problem. Not to mention solving the problems that got them here in the first place.
From the European Desk in London, Marketplace's Stephen Beard reports.
STEPHEN BEARD: When you're mired in debt and default seems possible, there's nothing like a multi-billion dollar loan to lift the spirits. And so it was in Athens today. The danger of default receded. The future cost of government borrowing fell sharply.
But Jan Randolph of IHS Global Insight here in London was not overly impressed with the rescue package.
JAN RANDOLPH: It's not a substitute for the hard graft, if you like, of actually getting your public finances back on to the straight and narrow and that's the difficult one.
Greece has one of the world's biggest budget deficits -- almost 13 percent of GDP.
Gikas Hardouvelis, chief economist with Greece's second biggest bank, blames the previous government for this.
GIKAS HARDOUVELIS: They were governing with a very slim majority. And they decided to throw money at everything. Every problem, and this is what made the deficit skyrocket.
Adopting the euro nine years ago fueled the spending spree. Greece saw its interest rates drop to German levels. Greek consumers joined in the borrowing binge. In the ensuing boom, says Hardouvelis, successive governments failed to curb the ballooning public sector and tackle the lack of competitiveness.
HARDOUVELIS: Simply, the euro area hid the problem. It hid it from the politicians and from people.
The politicians hid a lot, too. The previous government lied about its debts. Truth be told, the Greek people may also have been deceiving themselves. The problem, says commentator John Psarapolous, is the country's long history of state control. He says after only 20 years of full-blooded capitalism, the Greeks still don't get it.
JOHN PSARAPOLOUS: We still don't understand that in an open, capitalist, free market economy every debt is credited and every credit is debited. Everything at some point has to be paid for. I just don't think that's been in our culture.
He says the multi-billion loan package has given the Greeks a breathing space. Perhaps a year. But if they don't solve their economic problems, they could once again be staring default in the face.
In London, this is Stephen Beard for Marketplace.