The Impact of the Financial Crisis on Greece
1. The Banking System
The banking system in Greece was under pressure even before the financial crisis. In 2007, the country’s four largest banks – National Bank of Greece, Alpha Bank, Eurobank and Piraeus Bank – had a Tier 1 capital ratio of just 7.6%, which is below the 8% regulatory minimum.
The crisis hit Greece hard. By 2012, the country’sbanks had lost 60% of their value and deposits had fallen by a third. Non-performing loans (NPLs) rose to 28% of the total, and the government was forced to bail out the banks with European Union (EU) and International Monetary Fund (IMF) loans.
Since then, Greek banks have been through two rounds of recapitalisation, totalling €50 billion. They have also reduced their NPLs to 15% of the total through write-downs, sales and securitisations. As a result, the banking system is now much healthier and well-capitalised.
2. The Impact on Local Consumers and Investors
The financial crisis has had a profound impact on Greek consumers and investors. Household incomes have fallen sharply, while unemployment has risen to 27%. This has put severe pressure on household budgets and spending power.
In addition, Greeks have seen the value of their investments plummet. Many have lost their life savings as a result of the stock market crash and the collapse of bank shares.
3. The Budget Deficit
Greece ran up large budget deficits in the years leading up to the financial crisis. In 2009, the deficit reached 15% of GDP, one of the highest levels in Europe. This was caused by a combination of overspending and low tax revenues.
The financial crisis made things worse. As tax revenues fell and unemployment rose, spending on social welfare benefits increased. As a result, the deficit ballooned to over 10% of GDP in 2010-2011.
In response to this, the Greek government introduced a series of austerity measures, including spending cuts and tax increases. These measures helped to bring the deficit down to 3% of GDP by 2013-2014.
4. The Public’s Response
The Greek public has responded angrily to the austerity measures imposed by the government in response to the financial crisis. In 2010-2012, there were regular protests against spending cuts and tax increases. These protests sometimes turned violent, with clashes between demonstrators and police.
In 2015, the Syriza party was elected on a promise to end austerity and negotiate a better deal with Greece’s creditors. However, after months of negotiations, Syriza was forced to agree to an even tougher austerity package in order to avoid a default on Greece’s debt repayments. This led to another wave of protests against austerity in 2016-2017.
Despite the public’s anger, polls show that a majority of Greeks still support membership of the eurozone. This is because they believe that leaving the euro would be even worse for the economy.