Greek government-debt crisis
faced a sovereign debt crisis in the aftermath of the 2008 financial crisis. Widely known in the country as The Crisis, it led to impoverishment and loss of income and property, and forced the government to carry out a series of sudden reforms and austerity measures. In all, the Greek economy suffered the longest recession of any advanced mixed economy to date and became the first developed country whose stock market was downgraded to that of an emerging market in 2013, only starting to be reclassified back as a developed market by FTSE Russell in October 2025. As a result, the Greek political system was upended, social exclusion increased, and hundreds of thousands of well-educated Greeks left the country, though the majority of those emigrants had returned as of 2024.
The crisis started in late 2009, triggered by the turmoil of the world-wide Great Recession, structural weaknesses in the Greek economy, and lack of monetary policy flexibility as a member of the eurozone. The crisis included revelations that previous data on government debt levels and deficits had been underreported by the Greek government; the official forecast for the 2009 budget deficit was less than half the final value, and after revisions according to Eurostat methodology, the 2009 government debt was raised from $269.3bn to $299.7bn, about 11% higher than previously reported.
The crisis led to a loss of confidence in the Greek economy, indicated by a widening of bond yield spreads and rising cost of risk insurance on credit default swaps compared to the other Eurozone countries, particularly Germany. The government enacted 12 rounds of tax increases, spending cuts, and reforms from 2010 to 2016, which at times triggered local riots and nationwide protests. Despite these efforts, the country required bailout loans in 2010, 2012, and 2015 from the International Monetary Fund, Eurogroup, and the European Central Bank, and negotiated a 50% "haircut" on debt owed to private banks in 2011, which amounted to a €100bn debt relief.
After a popular referendum which rejected further austerity measures required for the third bailout, and after closure of banks across the country, on 30 June 2015, Greece became the first developed country to fail to make an IMF loan repayment on time. At that time, debt levels stood at €323bn or some €30,000 per capita, little changed since the beginning of the crisis and at a per capita value below the OECD average, but high as a percentage of the respective GDP.
Between 2009 and 2017, the Greek government debt rose from €300bn to €318bn. However, during the same period the Greek debt-to-GDP ratio rose up from 127% to 179% due to the severe GDP drop [|during the handling of the crisis].
Overview
Historical debt
Greece, like other European nations, had faced debt crises in the 19th century, as well as a similar crisis in 1932 during the Great Depression. While economists Carmen Reinhart and Kenneth Rogoff wrote that "from 1800 until well after World War II, Greece found itself virtually in continual default", Greece recorded fewer cases of default than Spain or Portugal in the aforementioned period. Actually, during the 20th century, Greece enjoyed one of the highest GDP growth rates in the world and average Greek government debt-to-GDP from 1909 to 2008 was lower than that of the UK, Canada or France. During the 30-year period immediately prior to its entrance into the European Economic Community in 1981, the Greek government's debt-to-GDP ratio averaged only 19.8%. Indeed, accession to the EEC was predicated on keeping the debt-to-GDP well below the 60% level, and certain members watched this figure closely.Between 1981 and 1993, Greece's debt-to-GDP ratio steadily rose, surpassing the average of what is today the Eurozone in the mid-1980's. For the next 15 years, from 1993 to 2007, Greece's government debt-to-GDP ratio remained roughly unchanged, averaging 102%; this figure was lower than that of Italy and Belgium during the same 15-year period, and comparable to that for the U.S. or the OECD average in 2017. During the latter period, the country's annual budget deficit usually exceeded 3% of GDP, but its effect on the debt-to GDP ratio was counterbalanced by high GDP growth rates. The debt-to GDP values for 2006 and 2007 were established after audits resulted in corrections of up to 10 percentage points for the particular years. These corrections, although altering the debt level by a maximum of about 10%, resulted in a popular notion that "Greece was previously hiding its debt".
Evolutions after birth of euro currency
The 2001 introduction of the Euro reduced trade costs between Eurozone countries, increasing overall trade volume. Labor costs increased more in peripheral countries such as Greece relative to core countries such as Germany without compensating rise in productivity, eroding Greece's competitive edge. As a result, Greece's current account deficit rose significantly.A trade deficit means that a country is consuming more than it produces, which requires borrowing/direct investment from other countries. Both the Greek trade deficit and budget deficit rose from below 5% of GDP in 1999 to peak around 15% of GDP in the 2008–2009 periods. One driver of the investment inflow was Greece's membership in the EU and the Eurozone. Greece was perceived as a higher credit risk alone than it was as a member of the Eurozone, which implied that investors felt the EU would bring discipline to its finances and support Greece in the event of problems.
As the Great Recession spread to Europe, the amount of funds lent from the European core countries to the peripheral countries such as Greece began to decline. Reports in 2009 of Greek fiscal mismanagement and deception increased borrowing costs; the combination meant Greece could no longer borrow to finance its trade and budget deficits at an affordable cost.
A country facing a 'sudden stop' in private investment and a high debt load typically allows its currency to depreciate to encourage investment and to pay back the debt in devalued currency. This was not possible while Greece remained in the euro. "However, the sudden stop has not prompted the European periphery countries to move toward devaluation by abandoning the euro, in part because capital transfers from euro-area partners have allowed them to finance current account deficits". In addition, to become more competitive, Greek wages fell nearly 20% from mid-2010 to 2014, a form of deflation. This significantly reduced income and GDP, resulting in a severe recession, decline in tax receipts and a significant rise in the debt-to-GDP ratio. Unemployment reached nearly 25%, from below 10% in 2003. Significant government spending cuts helped the Greek government return to a primary budget surplus by 2014.
Causes
External factors
The Greek crisis was triggered primarily by the Great Recession, which led the budget deficits of several Western nations to reach or exceed 10% of GDP. In the case of Greece, the high budget deficit was coupled with a high public debt to GDP ratio. Thus, the country appeared to lose control of its public debt to GDP ratio, which reached 127% of GDP in 2009. In contrast, Italy was able to keep its 2009 budget deficit at 5.1% of GDP despite the crisis, which was crucial, given that it had a public debt to GDP ratio comparable to Greece's. In addition, being a member of the Eurozone, Greece had essentially no autonomous monetary policy flexibility.Finally, dramatic revisions in Greek budget statistics were heavily reported on by media and condemned by other EU states, leading to strong reactions in private bond markets. As a result of the appearance of impropriety, market interest rates on Greek debt rose dramatically in early 2010, making it much more challenging for the country to finance its debt.
Internal factors
There have been arguments regarding the country's poor macroeconomic handling between 2001 and 2009, including the significant reliance of the country's economic growth to vulnerable factors such as tourism.In January 2010, the Greek Ministry of Finance published Stability and Growth Program 2010, which listed the main causes of the crisis including poor GDP growth, government debt and deficits, budget compliance and data credibility. Causes found by others included excess government spending, current account deficits, tax avoidance and tax evasion.
GDP growth
After 2008, GDP growth was lower than the Greek national statistical agency had anticipated. The Greek Ministry of Finance reported the need to improve competitiveness by reducing salaries and bureaucracy and to redirect governmental spending from non-growth sectors such as the military into growth-stimulating sectors.The Great Recession had a particularly large negative impact on GDP growth rates in Greece. Two of the country's largest earners, tourism and shipping were badly affected by the downturn, with revenues falling 15% in 2009.
Government deficit
Fiscal imbalances developed from 2004 to 2009: "output increased in nominal terms by 40%, while central government primary expenditures increased by 87% against an increase of only 31% in tax revenues." The Ministry intended to implement real expenditure cuts that would allow expenditures to grow 3.8% from 2009 to 2013, well below expected inflation at 6.9%. Overall revenues were expected to grow 31.5% from 2009 to 2013, secured by new, higher taxes and by a major reform of the ineffective tax collection system. The deficit needed to decline to a level compatible with a declining debt-to-GDP ratio.Government debt
The debt increased in 2009 due to the higher-than-expected government deficit and higher debt-service costs. The Greek government assessed that structural economic reforms would be insufficient, as the debt would still increase to an unsustainable level before the positive results of reforms could be achieved. In addition to structural reforms, permanent and temporary austerity measures were needed. Reforms and austerity measures, in combination with an expected return of positive economic growth in 2011, would reduce the baseline deficit from €30.6 billion in 2009 to €5.7 billion in 2013, while the debt/GDP ratio would stabilize at 120% in 2010–2011 and decline in 2012 and 2013.After 1993, the debt-to-GDP ratio remained above 94%. The Great Recession caused the debt level to exceed the maximum sustainable level, defined by IMF economists to be 120%. According to the report "The Economic Adjustment Programme for Greece" published by the EU Commission in October 2011, the debt level was expected to reach 198% in 2012, if the proposed debt restructure agreement was not implemented.