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'Nobody believes in anything anymore': Why Greece's economic crisis is not over


With Europe facing pressing crises including the refugee crisis, economic slowdown and political disintegration following the Brexit vote, it's easy to forget that Greece's political and economic crisis dominated headlines last summer.

One year on and a third bailout worth 86 billion euros ($96.1 billion) later, arrived at after tortuous negotiations between Greece and its lenders, and the situation in Greece is a game of two halves with many Greeks suffering - and some trying to make something out of a bad situation.

Greece's government has been forced to make widespread spending cuts over the course of its three separate bailout programs, making life harder for most Greeks of ordinary means. The cuts have affected all ages with unemployment rising to the highest level in Europe.

A survey by independent analysis firm DiaNEOsis in June revealed that many Greeks were facing an increasing struggle to get by. Extreme poverty in the Greek population (of 11 million people) had risen from 2.2 percent in 2009, to 15 percent in 2015, the public opinion survey of 1,300 people showed, with 1.6 million people now living below in extreme poverty.

People walk past a homeless man asleep on a sidewalk still holding the cup he uses to beg for money, on April 8, 2016 in Athens, Greece.
Melanie Stetson Freeman/The Christian Science Monitor via Getty Images

One resident of the northern Greek city of Thessaloniki, Evangelos Kyrimlis, told CNBC that the Greece's crisis had taken its toll on society, both at a local and national level.

"Disillusionment is the first big thing that's going on," he noted. "Nobody believes in anything anymore."

"The second big thing is withdrawal. People have retreated to their families and fight only for the family survival. Society has been fragmented," he said. Kyrimlis works for his partner's family firm, having returned to Greece after working for an engineering consultancy in London.

Returning to Greece in the midst of the country's financial breakdown, he said he now noted an increase in animosity between people, saying there was a "widespread hatred not directed to anyone in particular, it's like all against all."

Economy 'like a 60-year-old'

The leftwing Syriza government was elected last January on an anti-austerity manifesto but after months of horse-trading with its European neighbors and lenders over getting more financial aid, Syriza leader and Prime Minister Alexis Tsipras was forced to concede defeat and sign up to a third bailout last summer, despite the majority of Greeks voting "no" to more austerity.

Tsipras' hesitation over a third bailout (and, no doubt, his angry denunciations of lenders) actually made the situation worse as lenders imposed heavier reform and spending cut demands on Greece amid concerns from many euro zone countries - wary of rising anger from taxpayers over yet another Greek "rescue" - that it was not going to abide by its bailout conditions.

As well as cutting public spending in key sectors (such as defense) significantly, lenders have demanded that Greece reach a primary budget surplus (when government revenues are higher than spending, excluding Greece's debt interest payments) target of 3.5 percent by 2018 – with the idea that the surplus is used to reduce Greece debt.

Lenders also demanded an overhaul of the taxation system and widespread labor market and pension reform, reversing previously generous public sector pensions and raising the retirement age.

Now largely beholden to lenders and heavily indebted, Greece's debt to GDP is over a whopping 180 percent – making it one of the most indebted nations in the world. It has made the question of Greek debt a divisive issue for lenders.

So much so that a participant in Greece's two previous bailouts, the International Monetary Fund (IMF), is still undecided over whether to participate in the latest aid program. In particular, the IMF is at odds with other lenders over the demands on Greece (such as the high primary budget surplus target) and it has called on Brussels to reduce Greece's debt load to a sustainable level.

Meanwhile, unemployment remains around 23.3 percent at the last count in April (the highest in the European Union) and the economy is crawling out of recession, trying to raise investment and growth.

Still, there is reason to hope. Last Friday, Greece reported a surprise 0.3 percent increase in gross domestic product (GDP) in the second quarter, far surpassing expectations for a contraction of 0.2 percent. It also revised its first quarter figures, reporting a 0.1 percent decline rather than the previously reported 0.5 percent fall. Still, on an year-by-year basis the economy is contracting, by 0.7 percent in the second quarter compared to the same period last year.

Kyrimlis noted that the Greek economy was "like a 60 year old man – it keeps walking but you know it won't there is huge hatred from people in the private sector towards state employees," he said, alluding to the perception that public sector workers have been treated too generously by the state.

"In small cities you walk and you see people over 60 and below 20," Kyrimlis noted. "It seems like my generation has vanished...indeed 400,000 have left Greece since 2007 (and these were) the brightest people" he noted.

Reasons to be cheerful?

The crisis is still with us in Greece: Expert

In the Greek capital of Athens, where hundreds of thousands of people took to the streets last summer to protest against austerity and lenders' demands, the atmosphere seems to be better. Despite the high national employment rate, certain sectors, such as the tourism industry, one of sunny Greece's mainstays, are still holding up.

One youth hostel worker in Athens, who preferred not to be identified, told CNBC that she didn't really have experience of the economic downturn – especially as her work involved working with tourists.

Tellingly, the youth hostel was fully booked this summer, mainly with 20-35 years old but also with older and younger guests, she said. In addition, the hostel worker, originally from the Baltic region, felt her employment was secure there.

"Tourism is still going pretty well," the worker said. "I know that the wider economic situation is not good and that there are many people that struggle. Most of my friends are fine though and a lot of them do their own thing or freelance so people have found a way to make money too."

She noticed that prices in the city were not low compared to what people were earning, however, and that in that sense it was "not easy to live here" but still, the experience of living in Greece's capital city was worth it for her.

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