The Financial Times attempts to chart the journey of Greece, which it says has “come back from the brink” as it marks ten years since the referendum of 2015.

As reported in the FT, 2015 was “the turning point in the drama that shook global financial markets for years and threatened to break up economic and monetary union, the EU’s only achievement.”

“If Greece had left the euro, it would have meant the end of the euro. Because that would prove that our single currency is not eternal. It would just become a fixed-rate zone,” says Pierre Moscovici, who served as European Commissioner for Economic Policy from 2014 to 2019.

Describing what happened in July 2015, the FT writes that “Greeks voted in a referendum to reject the country’s international bailout plan, under pressure from their far-left populist government. Prime Minister Alexis Tsipras, who came to power in January 2015 by exploiting a wave of popular revulsion towards mainstream parties, and his divisive finance minister, Giannis Varoufakis, wanted to extract better terms from Greece’s European and international creditors.”

According to the paper, the Tsipras-Varoufakis tactics “bordered on rupture, brought the country to the brink of euro exit, financial collapse, and economic disaster. However, in just a few days, Tsipras backed down and Varoufakis left.”

Tsipras’s “backflip”

Calling it a “180-degree turn” or “ass-kicking,” the Financial Times notes that “it was a costly tactic that stalled the economic recovery and destroyed the government’s credibility with its European partners. Yet it also marked the beginning of a new era of Greece’s compliance with the terms of its bailout programme and laid the foundations for recovery.”

As for the 10 years that have passed since then, the British newspaper records that “Greece has made a remarkable recovery, exited the bailout program, maintained fiscal discipline and outperformed economically richer countries.”

“We essentially lost 25% of our GDP and came very close to managing a complete social collapse if we had been forced to leave the eurozone,” Prime Minister Kyriakos Mitsotakis tells the FT. “But I think it is also proof of the resilience of Greek society and the political system that we have managed to recover,” Mitsotakis adds.

“The difficult reforms that Greece finally adopted after the crisis have transformed its fortunes. Coming to grips with disaster has also profoundly reshaped the eurozone, pushing it to strengthen the fragile single currency with new tools and institutions. However, much remains to be done. A decade after the crisis peaked, Greece’s GDP per capita is still only 70% of the EU average and its productivity problems remain acute. Meanwhile, the EU still lacks a proper banking union and a budget big enough to absorb the economic shocks,” the FT continues, recalling Draghi’s intervention of €800bn a year in investment in innovation and infrastructure, part of which would have to come from joint EU borrowing.

“Greece has made reforms, but has not transformed itself. The same is true for the eurozone. We can now deal with the known unknowns, but we are still very much stuck in our little national boxes,” says Thomas Wieser, a former senior European official.

They asked for a piece of Greece’s flesh

Returning to 2010, the British newspaper recalls that “cut off from markets after the global financial crisis, Greece quickly became the weakest link in the eurozone. The country had structural weaknesses and grossly underestimated the level of its public deficit, which in 2009 was five times higher than the EU’s 3 per cent threshold.”

The European Union’s deficit was five times higher than in the EU’s five-year limit of the European Union’s five-year average.

Former senior official of the European Commission’s Economics Directorate, Marco Bouti, says that “the real cause of the crisis in 2009 and 2010 was the falsification of data. This led to the moral hazard paradigm and meant that some EU parliaments demanded ‘a piece of flesh be extracted from Greece.”

“Greece failed to get its finances in order and needed three international bailouts in eight years to stay afloat, repeatedly implementing harsh austerity measures while facing political instability and social unrest,” the Financial Times feature also said.

The mistakes of the first programme

The same paper also talks about “serious mistakes” that started the road to recovery: “Greece’s first bailout programme, launched in haste in 2010, was shaped more by urgency than by precision. Based largely on IMF interventions in Latin America and sub-Saharan Africa, it required funding cuts but failed to take into account the constraints of a country in a currency union without an independent exchange rate or monetary policy. It is now widely recognised – by Greeks, Europeans, and IMF officials – that this programme was fundamentally flawed in both design and execution.

As former economy minister in the Syriza government, Giorgos Houliarakis, says, the first bailout program “imposed a very tough consolidation, with unrealistic fiscal targets, and put the full burden of adjustment on Greece.”

“The economy collapsed, shrinking by 26% between 2008 and 2013. Unemployment soared to 28%,” the FT recalls, adding that “growth had returned when Syriza leader Alexis Tsipras took power in 2015, promising to scrap Greece’s deal with its creditors. His stance resonated with weary Greeks, who had seen their real income decline for years. With time running out for the second bailout package, Athens embarked on a confrontation with its creditors that would last seven months.”

“They never wanted to negotiate”

Referring to the positions of Varoufakis and other Syriazas “radicals”, the FT comments that “they believed that the risk to the rest of the eurozone of Greece’s exit gave them the advantage of extracting new money on better terms. Varoufakis quickly lost the confidence of his eurozone peers.”

“He was never in a negotiating mood. He was never in a position to compromise. He always gave lessons with a narcissistic approach… [He was] a disastrous finance minister,” Moscovici recalled.

For his part, Euclid Tsakalotos describes that “it would have been very difficult to reach a compromise with significant austerity without a referendum”, also arguing that the third bailout package he agreed with creditors as Alexis Tsipras’ finance minister was “undoubtedly better” because in his view “the fiscal targets were less demanding”.

“Many other Greek and European officials strongly dispute this argument, saying that the Tsipras government achieved only minor concessions but at huge cost because its policy of extreme positions neutralised emerging confidence in the recovery,” the FT presents the counter-argument, quoting Stournaras’ estimate that the cost of “the so-called Varoufakis negotiations” was 85bn. euros at current prices, based on the IMF’s projected deterioration of Greece’s debt position between the end of 2014 and mid-2015.

This was followed by capital controls, a return to recession and the brain drain of Greeks abroad over the next four years, however, the Syriza government faithfully implemented the terms of Greece’s third bailout program” with Houliarakis saying the Tsipras government had to “exceed expectations” to convince investors that the IMF’s bleak forecasts were wrong

The return to growth

“After the New Democracy Party’s return to power in 2019, modest growth accelerated, leading the country to an impressive fiscal recovery. Greece now has a primary surplus of 4.8%, while public debt is falling rapidly – not just because of inflation but also thanks to early repayments,” the FT writes.

“We are talking about an economy different from the one we inherited in 2019 in terms of its fiscal health and competitiveness. Much remains to be done,” notes Kyriakos Mitsotakis.

The British newspaper’s article lists ND’s performance in areas such as “eliminating bureaucracy by digitizing parts of the public sector and curbing tax evasion, cleaning up banks and reforming the PPC.”

Highlighting the role of the Recovery Fund, the Financial Times notes that “Greece’s GDP growth has recently outpaced that of the wealthiest European countries. Exports as a share of GDP have doubled since 2008. However, although investment as a share of GDP has risen to 15%, it still falls well short of the EU average of around 20%.”

SEV president Spyros Theodoropoulos notes that Greece has a net investment deficit of more than €100 billion – a legacy of years of underinvestment and capital devaluation. “We have lost a decade of productive investment,” he says.

“Average hourly productivity is less than half the EU average, a fact that reinforces wider concerns about competitiveness and wage stagnation. The country is still heavily dependent on sectors such as tourism and real estate – a comparative advantage for sunny Greece, but not necessarily conducive to long-term value creation,” the paper notes.

“This government had to solve the long-standing problems that the country was facing at the economic, political and institutional level, all the issues that had been discussed for decades,” Finance Minister Kyriakos Pierrakakis said. “On the other hand, the government is elected and has to face all the challenges and crises that have arisen over the last six years,”
he adds.

“For Houliarakis, a return to pre-crisis prosperity is still a distant goal, despite the growth figures that Greece is currently showing. The country may be outperforming its bonds, but the damage caused during the crisis years was so deep that convergence will require a generation of continued outperformance,” the paper continues, with the former finance minister saying that “we will have to grow 1% more than the rest of the EU for another 15 years to reach the 2007 level.”

The transformation of the European Union

“The Greek crisis has left a different country behind, but it has also transformed the EU, albeit after a shaky start. As the crisis spread to Ireland, Portugal, Spain and Cyprus and threatened the rest of the eurozone, the Union eventually agreed to create its own permanent bailout fund, which became the European Stability Mechanism. It set up a new system to wind down failing banks. And the ECB became the lender of last resort with President Draghi’s historic pledge to “do whatever it takes” to save the euro.

“Because of Greece, Europe has changed. Greece was the midwife of history,” comments Bank of Greece governor Giannis Stournaras.

When the pandemic broke out in 2020, the legacy of Greece’s bailouts underscored the need for EU solidarity and an €800 billion recovery fund. A senior EU official says the model for the pandemic recovery fund, which calls for investment in exchange for reforms proposed by national capitals, was modeled on lessons learned from Greece.

However, the eurozone still lacks a significant budget or permanent fund to deal with shocks. Moves to create a banking union, including a pan-European deposit guarantee scheme to reduce the risk of troubled banks driving indebted governments into collapse and vice versa, have stalled.