What’s the latest?
European authorities have authorized handing 7.5 billion euros, or $8.4 billion, in bailout aid to Greece, which will allow the country to keep paying its bills in the coming months. It has also won additional pledges of debt relief, helping to ease concerns about another crisis in Greece at a time when Europe is dealing with an influx of migrants and a continuing terrorist threat.
Debt relief has been a contentious issue for creditors, with the International Monetary Fund and Germany lining up on opposite sides. The I.M.F. has insisted that Greece cannot meet its budget goals without easing its debts, while Germany remains skeptical of cutting Athens more slack.
They have reached a compromise, of sorts. Greece’s creditors committed to debt relief, although not until 2018 at the earliest, provided the country continues to carry out painful changes.
How does the crisis affect the global financial system?
In the European Union, most real decision-making power, particularly on matters involving politically delicate things like money and migrants, rests with 28 national governments, each one beholden to its voters and taxpayers. This tension has grown only more acute since the January 1999 introduction of the euro, which binds 19 nations into a single currency zone watched over by the European Central Bank but leaves budget and tax policy in the hands of each country, an arrangement that some economists believe was doomed from the start.
Since Greece’s debt crisis began in 2010, most international banks and foreign investors have sold their Greek bonds and other holdings, so they are no longer vulnerable to what happens in Greece. (Some private investors who subsequently plowed back into Greek bonds, betting on a comeback, regret that decision.)
And in the meantime, the other crisis countries in the eurozone, like Portugal, Ireland and Spain, have taken steps to overhaul their economies and are much less vulnerable to market contagion than they were a few years ago.
Debt in the European Union
Gross government debt as a percentage of gross domestic product plotted through the fourth quarter of 2014.
Source: Eurostat
Debt in the European Union
Gross government debt as a percentage of gross domestic product plotted through the fourth quarter of 2014.
Source: Eurostat
What if Greece left the eurozone?
At the height of the debt crisis a few years ago, many experts worried that Greece’s problems would spill over to the rest of the world. If Greece defaulted on its debt and exited the eurozone, they argued, it might create global financial shocks bigger than the collapse of Lehman Brothers did.
Now, however, some people believe that if Greece were to leave the currency union, in what is known as a “Grexit,” it would not be such a catastrophe. Europe has put up safeguards to limit the so-called financial contagion, in an effort to keep the problems from spreading to other countries. Greece, just a tiny part of the eurozone economy, could regain financial autonomy by leaving, these people contend — and the eurozone would actually be better off without a country that seems to constantly need its neighbors’ support.
Greece does hold some leverage, however. European leaders are keen to avoid a new Greek crisis before a British referendum on membership to the European Union in June, and will most likely need Greece’s help in tackling the Continent’s continuing migration crisis, which has been concentrated in the Aegean Sea.
Greece’s G.D.P. and Unemployment Rates in Europe
First quarter 2015 average; *Britain is the three-month average through February.
Source: Eurostat
How did Greece get to this point?
Greece became the center of Europe’s debt crisis after Wall Street imploded in 2008. With global financial markets still reeling, Greece announced in October 2009 that it had been understating its deficit figures for years, raising alarms about the soundness of Greek finances.
Suddenly, Greece was shut out from borrowing in the financial markets. By the spring of 2010, it was veering toward bankruptcy, which threatened to set off a new financial crisis.
To avert calamity, the so-called troika — the International Monetary Fund, the European Central Bank and the European Commission — issued the first of two international bailouts for Greece, which would eventually total more than €240 billion.
The bailouts came with conditions. Lenders imposed harsh austerity terms, requiring deep budget cuts and steep tax increases. They also required Greece to overhaul its economy by streamlining the government, ending tax evasion and making Greece an easier place to do business.
If Greece has received billions in bailouts, why has there still been a crisis?
The money was supposed to buy Greece time to stabilize its finances and quell market fears that the euro union itself could break up. While it has helped, Greece’s economic problems have not gone away. The economy has shrunk by a quarter in five years, and unemployment is about 25 percent.
The bailout money mainly goes toward paying off Greece’s international loans, rather than making its way into the economy. And the government still has a staggering debt load that it cannot begin to pay down unless a recovery takes hold.
The government will now need to continue putting in place deep economic overhauls required by the bailout deal Prime Minister Alexis Tsipras brokered in August, as well as the unwinding of capital controls introduced after political upheaval prompted a run on Greek banks.
Greece’s relations with Europe are in a fragile state, and several of its leaders are showing impatience, unlikely to tolerate the foot-dragging of past administrations. Under the terms of the bailout, Greece must continue to pass deep-reaching overhauls, many of them measures that were supposed to have been passed years ago.
