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The Global Financial Crisis Did A Real Number On Greece's Economy


Greece and its big European creditors remain locked in a stalemate this morning. On Sunday, Greeks voted to reject a package of tax increases and spending cuts its creditors are demanding. Yesterday, European leaders said that without deep reforms, they will not provide more aid to Greece. Meanwhile, Greek banks remain closed because they don't have the cash they need to operate. And all of this when just a couple of weeks ago, it looked like a deal could be brokered. NPR's Jim Zarroli reports on why that fell apart.

JIM ZARROLI, BYLINE: The standoff between Greece and Europe is taking place after years of brinksmanship and miscalculations on both sides. In 2010, the global financial crisis had left Greece deep in debt. And in exchange for financial help from Europe, it agreed to a program of fiscal and economic reforms. Nicholas Economides is a professor at NYU Stern School of Business.

NICHOLAS ECONOMIDES: In the beginning of the program, people thought, OK, we're going to get into this program. After a year, we'll be fine. We will have a one-year recession, and after a year, we will be growing.

ZARROLI: Economides says in exchange for financial aid, Greece agreed to a series of market reforms, like changing its labor laws to make laying people off easier. But he says the International Monetary Fund badly misjudged how long it would take to repair Greece's economy.

ECONOMIDES: According to the targets, Greece would recover almost immediately in 2011, and that didn't happen. Greece did not recover in 2011, did not recover in 2012, did not recover in 2013.

GABRIEL STERN: They just have had the most horrendous recession that probably any country has had in the West outside of wartime and including most wartimes.

ZARROLI: Gabriel Stern, head of global macro research at Oxford Economics, says that in 2015, Greece's economy was nearly a third smaller than the IMF had projected it would be.

STERN: It's the equivalent, in European terms, of losing Germany in the Netherlands. It's equivalent, in American terms, of losing New York, California and Florida. It's just unspeakable.

ZARROLI: Greece managed to balance its budget eventually, but the government never followed up on many of its reform promises. In fact, weary Greek voters elected a new leftist government in 2014 that promised to resist any more demands from Europe. Again, Nicholas Economides.

ECONOMIDES: The government was elected in the platform that was a hundred percent against the program. That was their platform. We're going to be a hundred percent against the program. The people were angry enough to vote for that.

ZARROLI: The new government returned to the negotiating table with Europe, making demands of its own. It wanted its creditors to write down its massive debt load. Here was then-finance minister Yanis Varoufakis in an interview on Britain's Channel 4.

YANIS VAROUFAKIS: The two golden words that mark the chasm between the yes and the no - debt restructuring.

ZARROLI: But the government's defiant rhetoric didn't win it any friends. Europe refused to consider restructuring for fear of the region's other debt-ridden countries would want debt relief, too. And it insisted that Greece raise its value-added tax and impose more budget cuts, including on government pensions. Hari Tsoukas is a professor at Britain's Warwick Business School who has run for the Greek Parliament. He says the government came to office vowing to resist austerity, and it ultimately had no choice but to walk away from the talks.

HARI TSOUKAS: I think, realistically speaking, they would been having problems to convince their own party - the left league of the party - to accept the deal.

ZARROLI: The government won a big political victory in this weekend's referendum when the Greek people rejected Europe's latest demands. But Greece's banks remain closed, and its economic problems appear almost insurmountable. And European leaders don't seem to be giving in. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.