Grexit

Grexit, an abbreviation for "Greek exit," refers to Greece's possible withdrawal from the eurozone, which made frequent news headlines from 2012 to 2015 and occasional news thereafter. The term first gained notoriety in early 2012, as many pundits, and even some Greek citizens, proposed that Greece leave the eurozone and return to the drachma as its currency instead of the euro as a way to deal with the country’s debt crisis.

Leaving the euro and bringing back the drachma was thought to be a way to allow Greece to recover from the brink of bankruptcy. A devalued drachma was considered as a way to encourage overseas investment and allow other Europeans to visit Greece on the cheap by paying in more-expensive euro. In this way, proponents argued that the Greek economy would suffer in the near term, but could eventually recover with far less assistance from other eurozone countries and the IMF, perhaps even quicker than via eurozone bailouts.

However, opponents argued that a return to the drachma would lead to a very rough economic transition and far-lower living standards, which could result in even more civil unrest. Some in Europe worried that Grexit could even cause Greece to embrace other foreign powers that might not align with interests of the eurozone.

Opponents to Grexit have seemingly won out, at least in the roughly six years since Grexit entered the discussion. As of mid-2018, Greece remains in the eurozone, with help from bailout loans in 2010, 2012 and 2015. However, the term Grexit has continued to make headlines on occasion. As Greece continues to attract foreign investment and with austerity measures, some have argued as recently as February 2018 that Grexit remains an eventual possibility.

Grexit points to decades-old problems in Greece such as high government debt, tax evasion and government corruption. Greece first joined the eurozone in 2001, but its government revealed just three years later that economic data was falsified so the country would gain entry.

When the global financial crisis struck, it laid bare many of Greece’s structural problems. Greece’s GDP shrank by 4.7% in the first quarter of 2009, and the deficit ballooned to more than 12% of GDP. The country subsequently suffered a string of credit-rating downgrades culminating in Standard & Poor’s demoting Greece’s debt to junk status, which caused the country’s bond yields to soar, reflecting the severe financial instability.

In exchange for receiving multiple bailouts to avoid bankruptcy, Greece had to agree to austerity measures. The first round of austerity in 2010 cut public-sector wages, raised the minimum retirement age, and increased fuel prices. Subsequent measures over the following three years reduced public-sector pay further, cut Greece’s minimum wage, reduced pension payouts, gutted defense spending and raised taxes. As a result, unemployment rose to nearly 28% in the fall of 2013, far higher than the 11% average for the eurozone as a whole.

One criticism of the bailouts has been that little of the money has gone to help Greek citizens directly. Rather, it has mostly passed through Greece and helped to repay Greece’s debtholders, most of which are banks in other European countries. Germany, for example, has been the largest contributor to Greece’s bailout packages, and its banks also are the largest investors in Greek bonds.

The result has been a sense among ordinary Greeks that their leaders and leaders in other eurozone countries have betrayed them. This feeling of betrayal has led to violent protests at times, and added political uncertainty.

While economic and financial uncertainty in Greece has improved markedly since the worst days of the crisis, the IMF warned as recently as early 2018 that Greece could face double-digit unemployment for several decades.