How Did Greek Economic Crisis Get So Bad?

What effect Greece's economic problems have on the global economy

ByABC News
May 5, 2010, 7:06 PM

May 05, 2010— -- With tens of thousands of protesters jamming the streets of Athens and starting fires today, smoke obscured the Acropolis on the city's skyline. But Europe's political leaders were dealing with a bigger concern -- that the growing economic crisis that led to the protests could put the entire continent's economy under a cloud.

Today the protesters, angered by huge tax hikes and drastic spending cuts, went on a 24-hour strike. Flights to and from Greece were grounded as employees walked off the job. Protestors set the finance ministry ablaze and threw gasoline bombs into a bank. Three people died inside before firefighters could reach them.

The crisis is affecting markets far from the packed streets of Athens, even in the United States. On Wall Street, stocks slipped today over concern that Greece's debt crisis could spread to other European countries.

A number of factors led to Greece's economic disaster. For more than a generation, Greece has been lax over its spending, paying out salaries on the government dime, with huge holiday bonuses.

Many employees were paid as though they'd worked a 14-month year, instead of 12. That extra money gave many Greeks a road to early retirement, for some even in their 50s.

And tax evasion was not only accepted but embraced by much of the population.

Greece says it's getting tough with its economic problems. Greek President George Papandreou pushed harsh spending cuts through, slashing salaries and raising the retirement age to 65. But Greece is still drowning in debt, desperate for a bailout from its European neighbors.

Some of those same neighbors are asking why they should pay for Greece's mismanagement. Though German Chancellor Angela Merkel has promised a financial aid package, the country's largest opposition party said today it won't back the controversial measure.

One economist said today that it would be like the state of Kansas not paying taxes and then, later, asking the rest of the country for a bailout.