Three financial assistance programmes were needed for Greece – why so many?
The extent of underlying economic problems at the beginning of the crisis in Greece was much greater than in other ESM/EFSF programme countries. Having adopted the euro in 2001, Greece was able to borrow at low interest rates despite its falling competitiveness and weak public finances. While government spending and borrowing increased, tax revenues weakened due to poor tax administration. Public debt soared quickly and investor trust in Greece was seriously undermined. The Greek economy contracted sharply (nearly 30% from 2008 to 2016) and unemployment climbed to alarming levels. Furthermore, the country’s administration was weaker than in other euro area countries. The public sector was oversized and its efficiency was well below European standards.
During the first and second programmes (bilateral loans from the other euro area countries known as the Greek Loan Facility or GLF from 2010-2011; EFSF programme from 2012-2015), wide-ranging reforms were carried out to address Greece’s problems, and in 2014, the country recorded GDP growth for the first time since 2007 and unemployment began to fall. In the first half of 2015, the country reversed very important reforms. There was an attempt to halt the reform programme Greece had agreed to. The result was that the country dropped back into recession. The third programme, agreed with the ESM in August 2015, enabled Greece to remain in the euro area in return for implementing a series of much-needed reforms. After three years, on 20 August 2018, Greece successfully completed the ESM programme. As of this date, the country is no longer reliant on ongoing external rescue loans for the first time since 2010.