International City Profile: Athens
Documenting Greece's Bankruptcy
Above: protestor at an EU anti-austerity demonstration (reuters uk)
In 2009, Greece reported that its budget deficit was at a 12.9% of its GDP, which was more than 4 times of the 3% cap the EU enforced. To respond, Standard & Poor lowered Greece's credit worthiness/rating. This exacerbated the situation as foreign investment became apprehensive to Greece.
The government in 2010 implemented austerity package to reduce deficits, attempting to reassure credit agencies they were fiscally competent. Greece assured the agencies they would have the debt-to-GDP ratio back down to 3%. However, only four months later, Greece declared it was about to default (not meeting the conditions of the loan) and the EU provided the government a loan of 240 million euros to make austerity procedures possible. However, the loan was not enough, and Greece scant had their heads above the water, having barely enough funds to pay interest on the debt and to keep banks afloat, only being able to operate on meagre capital. Additionally, tax was reduced as a consequence of the economy going into stagnation, which did not mitigate the debt. Unemployment rates were at 25% and public demonstrations and political rallies were starting to take form. Riots ensued in Athens and it became a dangerous place to travel. The political system was in chaos and people flocked and flitted from one politician to the other like sheep, each one assuring [they] could lead Greece out of the financial crisis. In 2012, Greece reported the debt-to-GDP ratio was at 175%, and bondholders agreed to exchange bonds worth $77 billion for 70% less debt.
MAY 2015: Greece is now vulnerable to default again, as they are unable to repay the money they owe the International Monetary Fund (IMF), and because of this will consequentially default on June 5th 2015 if EU creditors/foreign lenders offer assistance.
Above: A satirical cartoon on Greece's imminent, highly-probable default
Athens is considered Greece's "financial centre": how has the city developed and changed over time socially, politically, and economically prior to the worldwide Great Recession 08-09 and after?
1) What are the consequences, implications, and ultimately the impact of Greece going bankrupt and leaving the Eurozone?
2) How does the physical geography of the constituting EU countries link to the political and economic goals of the Union?
3) What countries constitute the European Union?
4) MAPPABLE: What are some of the most prominent areas in Athens for public demonstrations, rallies, or even riots?
Above latter map: the area of Syntagma Square, Athens, a prominent site for public demonstrations
1. Greek default will hit Euro hard. Financial stability of highly in-debt European countries shaken; Spain, Portugual, Ireland - since measures to bailout Greece fail, investors will lose trust in the other high-debt countries.
2. Greek banks close to resuscitate and raise capital to try and be back in business. European Central Bank refuses to fund Greek banks. French and German banks lose tens of billions of dollars from investing in Greek debt. Worldwide banking system affiliated with Greek debt lose money.
3. Greek banking system collapses - the public's bank accounts freeze, ATM's become obsolete.
4. Greece unable to function as a country of import; a problem as oil is a major import; creditors very reluctant to fund GDP account deficit.
5. Greece have to issue new currency/revert back to the old drachma -- currency plunges as it struggles to find reasonable rate of exchange.
6. World finance shaken similar to 2008 Wall Street collapse; worldwide banks in credit swaps with Greece swept away
1. 1.5bn euro debt package to IMF due this June
2. Greece need to repay bonds worth 6.7bn euros in the months after summer (starting August) and it is highly unlikely they will be able to do so if they do not receive further funding.
3. Debt sum of 315 billion euros - 175 percent of GDP.
4. GDP decline is 25% since 2008. 2008 GDP - 242 billion euros. 2013 GDP - 182 billion euros.
Analysis & Looking to the Future
In the beginning the European Union was created to make Europe successful and rich -- to create an alliance that shared the same currency and unified trade and commerce systems. The Union would also share the same currency. However, ever since realising Greece's debt (12% of GDP) since joining the EU Germany has also been critized for being on the back foot; Germany hates inflation because of their problems with it throughout their history and so the European Central Bank never printed money for Greece.
If Greece is expelled from the EU then it shows to the world that other EU countries with high debt can not resolve themselves. Greece would be a template and investors would lose faith in the EU. The Euro would be hit hard. Banks would be affected worldwide. Similar to the Lehman brothers collapse and the subsequent Wall street meltdown, Greece's aftermath will be similar to the world, maybe not so much for the short-term but for the long-term. For now it remains to be seen if Greece will succumb and default, but on that time of June 5th the IMF will provoke an answer.