The Greek debt crisis started in late 2009 during the global financial crisis, which affected many nations. Greece was hit hard because its main industries – shipping and tourism – were especially sensitive to changes in the business cycle.
Greece, along with Cyprus, Ireland and Portugal, faced persistent negative growth during this period and struggled to refinance their government debt. Spain was also in a dire financial situation but did not experience a crisis due to money received via the European Stability Mechanism to recapitalise banks.
The four nations in crisis received bailout funds from the Troika, which is the name for the three entities; the European Central Bank, the European Commission and the International Monetary Fund. As of July 2014, Ireland and Portugal had successfully exited their bailout programs. Cyprus’s program is still underway.
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In May 2010, Greece was provided a €110 billion bailout loan, conditional on implementation of austerity measures, structural reforms, and privatisation of government assets. A year later Greece needed another €130 billion due to the worsening recession and delay in implementing agreed policies.
In 2014, Greece elected the left-wing Syriza party which refused to accept the terms of the existing bailout program. This caused the Troika to halt scheduled aid under the bailout program until the Greek government agreed to the previously negotiated arrangements or to both parties agreeing on new terms. After the election of Syriza, the Eurogroup granted a fourth-month extension of the current bailout program on the condition that new terms were to be negotiated and agreed upon by both parties.
In recent weeks, faced with the prospect of sovereign default, Greece has scrambled to provide proposals that are acceptable to its lenders. It is expected that, in addition to unlocking funds from their second bailout program, Greece will likely need a third program to see it deliver on its debts.
However, the Troika needs to see a successful completion of the second bailout program before discussions of a third bailout are entered into. The ball is currently in Greece’s court to provide a proposal that satisfies its creditors and allows the Syriza government further access to loans.