The seven stages of Greece’s debt tragedy

http://www.theguardian.com/commentisfree/2015/jun/26/seven-stages-greeces-debt-tragedy



‘In the last five months Greece has been dangling in the precarious deadlock phase again and again.’

The seven stages of Greece’s debt tragedy
Jason Manolopoulos
Friday 26 June 2015 07.00 EDT

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1. Willing debtors – willing creditors

For the past three decades Greece enjoyed, to its later regret, a massive credit boom. For its citizens, this led to a short-term increase in wealth, as households borrowed more and the state received significant subsidies from EU aid funds for poorer regions.

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2. Debt crisis and ‘rescue’ packages

The cycle inevitably turns and debtors have to either restructure or default on their obligations. Creditors usually form a consortium in order to protect their initial investment. This is formed on the fictional belief that outstanding loans will not be impaired. New cash is injected by the consortium to the debtor; in return for austerity measures.

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3. Austerity and recession

Austerity measures in Greece resulted in a sharp decrease in domestic consumption that further prolonged the recession. Debt servicing costs remained high, but a small relief was accomplished. Minor improvements in the trade balance were considered inadequate and some discussions towards a restructuring of the public debt commences. Greece went through this phase in the winter of 2012.

4. The deadlock

Although both parties would be better off striking a deal, each acts in its own interest; the result is both are worse off. Funds gathered by the creditors are limited; intensifying pressures on the debtors. Creditors continue to receive interest payments, while the debtors’ living standards collapse. The stalemate holds only through the mutual threat of a complete breakdown. In the past five months Greece has been dangling in the precarious deadlock phase again and again.