this video is sponsored by Skillshare goto sk LSH / the plain bagel to get a free two month premium trial in the world of finance we are often quick to forget the tragedies of the past yet valuable lessons are to be had by exploring their causes and effects after all in world of ever-changing rules products and services history is the one constant that can guide us through the ambiguity so let's take a 5-minute history lesson on today's plain bagel it's 1999 and the Greek government is in a bit of a pickle the European Union has
just launched a fancy new currency the euro they'll be shared by its members but even though Greece is part of the EU and left off the invite you see despite massive tax evasion problems the Greek government has been spending to boost social benefits and wages which has caused their debt-to-gdp to rise well above the 60% required to adopt the currency so now they must decide between cutting back spending or missing out on the eurozone party unless of course there's a third option you see Goldman Sachs an American investment bank comes along with an idea a
way to meet the currency adoption criteria by masking the government's debt load through currency swaps involves a bit of line but this way the country can avoid radical reforms and reap the benefits of the euro a win-win so Greece gives us a shot using the sight of hand to adopt the currency in 2001 and sure enough the Sun pays off the currency brings with it more trade and since the Euro allows Greece to pay back off the financial strength of its fellow eurozone members the government aims access to better financing enough to even bring the
Olympics home for 2004 sure debt to GDP continues to rise above 110 percent and things are a little precarious but hey the economy is growing there's plenty of EU money funding the budget deficit and so long as things keep rolling everything will be ha that's not good looks like a real estate crisis in the US has triggered a global recession it's hitting Greece like a train GDP is falling as tourism and shipping so now with the Athens Stock Exchange plummeting 65% in 2008 worse yet borrowing costs are increasing oh and that shared currency we fought
so hard for well it's preventing Greece from stabilizing through monetary policy and just in case things didn't look bad enough surprise in 2009 it's revealed that the government has been cooking the books and its budget deficit is not 6.7% but double that whoops I mean more than double the original estimate borrowing costs skyrocket as the entire country's credibility is smashed like a plate on the floor OPA on April 27 2010 with a debt to GDP of 127 percent the country's credit rating is dropped to junk clownin Greece towards default as begins to drown in its
pile of public debt but look on the horizon visit a bird is it a plane no it's a buttload of money the troika a group consisting of two EU entities in the International Monetary Fund has come to bail Greece out in a bid to save the EU from the ramifications of a Greek default here's the plan lend agrees 110 billion euros to avoid default use the bailout money to pay off expensive creditors get the government to commit to higher taxes and lower spending to bring the country back into a surplus and wait for this recession
to blow over so on May 2nd 2010 the troika tosses Greece a lifeline and damn the bailout doesn't quite fix a problem in fact the austerity measures have put further pressure on GDP and brought debt to GDP up to one hundred and seventy two percent by 2011 with creditors quickly draining the bailout funds this is bad and the troika realized that more drastic measures are required so they devised a new plan give Greece another 130 billion euros negotiated with creditors to cut the country's IOU by 53.5% get the government to commit to further austerity measures
to bring the country back into a surplus and wait for this depression to blow over so on February 21st 2012 the troika prepares the largest sovereign debt restructuring in history tosses Greece's second lifeline and success the program grabs a hold and after two years of further tax reforms layoffs and wage cuts government reports a structural surplus but wait Greece is starting to fight back you see the Turkish bail of terms they're hoping the government get a handle on its debt are causing unrest at home with Greeks bearing the burden of falling wages rising taxes and
unemployment above 25 percent so when a snap election occurs in 2015 the people break over 40 years of two-party rule and elect a new anti-austerity party to office in a bid for change the new Prime Minister promises to boost spending and throw down the gauntlet to Detroit to renegotiate terms raising tensions between government and the troika until the country's lifelines snaps and ladies and gentlemen all hell breaks loose creditors flee crease once again and hella quiddity crisis emerges with fear gripping the country amid concerns of greggson Greece's departure from the EU negotiations with the troika
fell through as even its members clash and on June 30th 2015 with the government unable to secure any further debt relief Greece defaults missing a 1.6 billion euro debt payment to the IMF the first of elf country to ever do so the foundation of Greece's economy begins to crack as the government shuts down its stock exchange and banking system Greeks continue to fight against a new bailout proposed by the EU but at this point with the country and financial purgatory greggson inching closer in no more leverage for negotiation on July 16th a very desperate government
throws in the towel grabbing a hold of the EU s third lifeline and accepting an 86 billion euro bailout in August and so with the fight to boost spending meeting a dramatic end the Greek people prepare once again for a round of cuts reforms and hard times ahead all in the economy would shrink 25 percent as a result of the crisis and while Greece has since finished its bailout programme the country to this day maintains a debt to GDP of a hundred and eighty one percent and Greek people continue to suffer with one in three
Greeks at risk of living in poverty it goes to show the terrible consequences of fiscal mismanagement and as Greece continues down its road to recovery let us not forget the valuable and devastating case study it provided thanks for watching and thank you Skillshare for sponsoring the video Skillshare for those of you who don't know is an online learning community that offers thousands of classes that help users well share their skills they have lessons on everything from cooking and drawing to investing in leadership and it's a service I've actually used to improve my video editing capabilities
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