When and why did the Greek economy start to tank?
In: Economics
Imagine I tell you I’m about to get a great new job, and if you loan me some money, I’ll totally be able to pay you back, and then some. It’s looks like a pretty sweet job, so you say why not.
I start living large, nice house, fancy cars, so that job must be working out. I am making my payments, with interest, but I am also asking for more loans. I show you spreadsheets that prove how the money is flowing in, and since I am offering to pay interest, you keep up with the loans.
Fast forward several years. I’ve kept on living large, but I owe you a *lot* of money, more than you think I can pay back. On paper, it is a good investment because of the interest, but you are starting to get suspicious. You snoop around, and find out I completely lied to get the job, wasn’t doing very well at it, and those spreadsheets I showed you were completely made up. I am a total fraud, living a lie so you would loan me the money that supported my opulent lifestyle.
So what do you do?
You could cut me off. I’d lose my house and car, probably my job, and you would be out a lot of money.
Or you could keep loaning me some money, on the condition I cut back, get my act together and get into a position where I can pay you back. You might even forgive part of the debt in the hope of seeing at least some of it.
The problem is, I really like my house and car, and don’t want to move into an apartment and ride the bus. Every time you try to get me to cut back, I drag my feet, throw tantrums, call you a bully, come up with wild, unworkable alternatives, and take no real responsibility for my actions. Each month, when the bills come due, I threaten to just not pay anyone and become homeless if you don’t do things my way. You are pretty fed up with me, and figure things will end badly no matter what, so why throw good money after bad?
That is pretty what happened with Greece. They lied their way into the eurozone and lied about their economy, all the while using their eurozone clout to borrow money like crazy and spend it on useless public sector jobs and tax evasion. When they were found out, they blamed the lenders and instead of trying to change their ways elected leaders who promised they could solve the problem with fairy dust and unicorn farts.
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