5 Years of Bailouts

5 Years of Bailouts: The Grim Legacy of Greece’s Crisis

By NICHOLAS PAPHITIS Associated Press | May. 5, 2015 4:44 PM EDT

ATHENS, Greece (AP) — The sculpture shows a shabbily-dressed man slipping off what appears to be a graph, an economic index perhaps, that is crumbling under his feet. His mouth is distended in something less than a scream, more than a cry.

It’s clearly not one of Greece’s classical marbles depicting the wars and gods of old — in fact, it’s the first public monument about the country’s harrowing experience of economic depression.

The resin-and-fiberglass piece, by 22-year-old Tasos Nyfadopoulos, is named “Crisis” and speaks of a country trying to cope with a collapsing economy.

“It is extremely important to provide a voice for the human beings behind the numbers, who have a real story to tell that goes beyond statistics,” Nyfadopoulos told The Associated Press.

Wednesday marks five years since Greece voted in its first bailout deal, a day after violent popular protests left three dead. The act was followed by years of turmoil in which the country tried to overhaul its economy in the midst of a downturn as brutal as the Great Depression.

But after a myriad budget cuts, a million lost jobs, 250,000 closed businesses and nearly 240 billion euros ($267 billion) in rescue loans, the country is once again on the brink of default and relations with its creditors are worse than ever.

Moody’s rating agency said Monday that Greece is, despite all its savings efforts, still the fourth riskiest sovereign bond issuer, behind Ukraine, Venezuela and Argentina, all which have either defaulted on their debt or are perilously close to doing so.

It’s clear that the creditors — Greece’s fellow eurozone member states and the International Monetary Fund — underestimated the problem and miscalculated how to fix it:

—In 2010, the bailout lenders had forecast Greece’s economy would return to growth in 2012. It only emerged from recession late last year, and is predicted to fall back into it this year. —They had predicted unemployment would ease to around 15 percent by 2012. Not only did it not fall, but it kept rising, peaking at around 28 percent in 2014 and currently at 26 percent.

—Debt was scheduled to fall to 141 percent of GDP in 2014, but it actually rose to 177 percent, even after inflicting severe losses on private bondholders in 2012. —An initial plan to sell off state assets aimed to raise 50 billion euros ($55.6 billion) by 2015. It has so far raised just 3.1 billion euros.

One cause for the bad performance is that it is hard to cut debt at a time when the economy is shrinking, as Greece’s creditors had asked it to do. But successive Greek governments have also done too little, experts say. They were too slow to change the way the economy and political system work. Because the public sector was spared cost cuts, the private sector suffered the burden of recession. Greece’s Foundation for Economic and Industrial Research think tank noted in a report that the country made significant progress in healing public finances between 2010 and 2013. But that progress petered out late last year, when early elections were called for January.

The report said state revenues undershot targets in early 2015 and if the trend continues, “it is very likely that significant fiscal problems” will emerge.

In a nutshell: despite all the sacrifices of the past five years, the pain is not over for Greeks. The new radical left­led government was elected in January with a pledge to protect Greeks from more budget cuts. But creditors have not taken kindly to its hard line and insist they will pay no more rescue money unless Greece promises to make more reforms.

The uncertainty is again hurting Greece’s economy. The EU this week slashed its growth forecast for Greece this year from 2.5 percent to just 0.5 percent. If Greece gets no more rescue loans, the country may soon have to choose between paying pensions and state salaries or servicing state debt. Defaulting on debt could launch a chain reaction culminating in its exit from the eurozone and a Greek financial Stone Age, where the import­reliant country could barely afford key goods and commodities with a new, devalued currency. Berenberg bank analyst Holger Schmieding said that after “three months of pointless posturing, the new Greek government has finally entered into serious negotiations with its creditors.” He said the debate is no longer mostly about debt, but rather reforms that will boost growth, allowing the country to service its debt in the long term. “Accordingly, labor and pension reforms are now among the major bones of contention,” he said in a note Monday. He sees a 30 percent chance of “Grexit” — of Greece exiting the eurozone. The Economist Intelligence Unit placed the risk of Grexit at 40 percent. The EIU’s Joan Hoey said a deal may still be possible, because the eurozone is averse to taking incalculable risks and Greek public opinion strongly favors staying in the euro. Hoey warned, however, that even a last­ditch agreement by the end of June, when Greece’s bailout ends, would not necessarily resolve the problems underlying Greece’s membership in the eurozone. The currency union lacks a common fiscal policy, and weaker members are unable to improve competitiveness through the traditional tool of devaluing their currency.

Back on the beach­bound highway, Nyfadopoulos rejected the notion that his sculpture of a man slipping off an economic index was necessarily gloomy. “You can think of the man as escaping and breaking free of this situation, or as a suicide,” the artist said. “It’s up to the observer.”