Abstract
This chapter is about the financial and economic crisis in Greece. After listing symptoms that indicate the reality of a crisis, the following sections describe the prelude to the crisis. The first deals with the incubation of modern Greece—and of some behaviour of recent Greek governments—within the Ottoman Empire, continuing with economic and political developments in the decades immediately subsequent to the Second World War. The next section examines developments in the 1980s and early 1990s, with particular attention to fiscal policy, monetary policy and the macroeconomic environment. A third section discusses the slowing productivity growth that characterizes the last quarter of the twentieth century. This is followed with a caveat regarding the statistics provided by the Greek government in the past. Access to the European monetary union is the topic of the next section. Then comes a discussion of the apparent boom brought by accession to the euro. The chapter ends with a simplified model of the dynamic of the crisis in Greece.
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Notes
- 1.
The tensions between King Constantine and Prime Minister Georgios Papandreou led to the resignation of the latter and a series of unstable governments followed by a military coup. The military junta abolished the monarchy on June 1, 1973.
- 2.
The central idea for this section is taken from Manessiotis and Reischauer (2001).
- 3.
Many national statistics take into account inflation by using constant currency units, such as 2010 US dollars. However, the revenue and expenditure accounts of a nation are tabulated in current local currency units, so it is useful to have a sense of the inflation rate when evaluating the evolution of fiscal policy expressed in these current units. The ideal is to have one year as a base on which other years are indexed. In the case of Greece, 2010 is the base year when the index is 100; the value for January 1978 is 3.37 and the value for January 1990 is 26.9 (OECD (2017), Inflation (CPI) (indicator)). (It should be noted that the OECD data are based on euro converted from historic drachmae figures at the official 1999 conversion rate.) The prices for 1990 are roughly eight times higher than in 1978.
- 4.
Family in Greece had/(to a degree has) a significant role as an informal social protection institution that benefited from a wide range of economic and social policies, functioned as a social safety net and was linked to the micro and very small business sector (Christos Triantopoulos, personal communication).
- 5.
Besides limiting credit , earlier state intervention in finance had induced perverse effects. For example, funds provided to large manufacturers often had been used to finance the client trade businesses rather than to invest in new machinery and plant. See Pagoulatos (2003, especially pp. 64–66).
- 6.
The figures for gross capital formation and gross fixed capital formation are somewhat mysterious in the light of the financing available: government fixed capital formation (at 10–12% of government expenditures or 5% of GDP ) and transfers to enterprise (between 2 and 10% of government expenditures or 1–5% of GDP ), even if that latter were used only for capital investment , would only explain about half of fixed capital formation , leaving private enterprise to explain the other half under conditions of limited credit.
- 7.
There is one caveat, however: the composition of the services sector. “One in six Greeks or one in three employed in the tertiary sector were working for government” (Ioakimidis 2000, p. 77). Employment in the public sector doubled over the 1980s (ibidem). Another important component of the service sector was tourism of a sort in which real estate was more important than moderately skilled labour.
- 8.
In this regard, Christos Triantopoulos (personal communication) observed that labour unions (dominated by the employees in the public sector, SOEs and banks) were characterized by a party-politically minded pseudo-corporatism that was mainly oriented to the achievement of myopic and narrow collective benefits rather than the establishment of institutions focused on strategic coordination among stakeholders.
- 9.
During 1983–1990, the average share of self-employed to total employed was around 50%, while the share of employers to total employment amounted on average around 5.5%. In both cases, these levels were higher than the European Union levels and, especially, the level of self-employed. Apart from a high proclivity to tax evasion, the small-sized and self-employed economic activity was linked, among others, to the inability of achieving economies of scale, low investment in human capital, innovation and R&D, and the weakness of entering foreign markets (Christos Triantopoulos, personal communication).
- 10.
Eurostat is the statistical office of the European Union.
- 11.
Note: Complete references to unsigned IMF and OECD documents are given in the text and are not repeated here.
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Macdonald, R. (2018). A Financial and Economic Crisis in Greece. In: Eurocritical. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-34628-5_2
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