Flawed Bailouts, Political Missteps Brought Greece To Brink

By DAVID McHUGH, AP Business Writer, San Francisco Chronicle: World
Sat, 07/04/2015 - 10:49am

FRANKFURT, Germany (AP) — After two bailouts totaling 240 billion euros ($266 billion) and six years of depression, spending cuts and lost jobs, Greece teeters on the edge of collapse. On Sunday the country will hold a referendum on whether or not to accept the tough creditor conditions attached to loans needed to avoid default and a banking collapse. Greece engaged in a three-decades-long credit binge starting in the early 1980s, spending the money on plush government jobs for supporters of the country's two major political parties — the center-left PASOK and center-right New Democracy. Taking turns in office, they paid their followers well — driving up private sector wages and making Greece a costly place to do business. Independent professionals — including doctors and lawyers — often reported less income than factory workers. Despite its rickety finances, Greece shaped up a little for a few years and qualified to join the single currency in 2001. German and French banks found they could now buy Greek government bonds in euros, not drachmas that might devalue. In October 2009, after the global financial crisis had made investors more wary of risk, Greece revealed its deficit was far higher than advertised, and its finances were out of control. The creditors attached tough conditions to cut spending and deficits, and to tackle the rampant bureaucracy and corruption. [...] the reshuffle of Greece's debt meant that instead of owing bond investors, Greece's creditors were now European taxpayers, the IMF and the ECB. Voters, who were fed up with years of agony, chose Syriza, a hard-left party that won support with its demands for debt reduction and no more austerity.

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