The Greek public debt crisis

Some background info

  1. Inelastic public spending: The Greek economy based largely on the public sector (40% of GDP), which means that it’s not so easy to cut your costs when your income drops
  2. There’s two trends that can throw public deficit out of whack: a sudden increase in spending, or a sudden decline in (tax) income. The Greek economy has two strong players (outside the public sector): shipping and tourism.
  3. Public debt in Greece is traditionally high (113% of GDP in 2009)
  4. Eurostat has no authority to audit national finances. Any deficit revisions were signalled voluntarily by the Greek government.
  5. The acronym PIGS (Portugal, Italy, Greece, Spain) predates the current crisis.

History

The incoming Greek government of spring 2004 won the elections largely on the promise of ending corruption and telling the truth about state finances. The first major activity of this government was in fact to execute a highly publicised, thorough fiscal audit that resulted in the revision of the 2003 deficit from 1.7% to 4.6%. Keep in mind that in 2004 Greece hosted the Olympics and had completed or was implementing a wide range of public infrastructure projects (2 major highways, a new international airport, a subway and tram for Athens, the Rio-Antirrio bridge, etc).

What followed was 5.5 years of (politely expressed) much less ambitious leadership, which additionally was dotted by a rising number of corruption and financial trickery scandals (the very problems they were voted to resolve). When the international financial crisis broke out, the government relentlessly reassured the people that Greece was well-prepared for the crisis and that no need to worry was necessary. In fact the projection for 2009 (declared from the beginning by the opposition as unrealistic) was for a deficit of 3.7%.

Part of the Greeks started to realise their government was up to no good, leading to a landslide victory of the opposition in the autumn 2009 elections by 10.5%. Soon after, the deficit for 2009 was revised (from 3.7%) to 12.5% of GDP.

This has naturally led to renewed doubting of the trustworthiness of Greek public finance statistics, which directly influences the interest rate at which the country borrows money on the international scene (credit default swaps, or CDS).

This led to some largely offensive and racist articles in European press such as the Guardian (UK) and Focus (DE). The problem got also widespread (and higher quality) coverage from the European and international business press. At some point conservative German politicians invited Greece to sell some uninhabited islands to pay of its debt.

On the other hand, there were also several very different articles on German newspapers, like this, this .

My comments

First of all, I’m very disappointed by the behaviour of (many of) the Germans. I attribute it to a combination of jealousy («wish we could be as fun and care-free as the Greeks«), lack of solidarity («what do we care if they suffer because of their wrong choices? in fact, let’s make fun of them!«) and arrogance («this could never happen to Germany because we’re much more honest and hard-working than the Greeks«). Maybe also to some extent the feeling that the Germans have been contributing to the European Union much more than all others for quite a while now.

In particular, I think Angela Merkel is a bit jealous of Margaret Thatcher and of the Kaczyński brothers.

References

  1. Report on Greek deficit and debt statistics (European Commission, January 2010)
  2. Report by Eurostat on the revision of the Greek government deficit and debt figures (Eurostat, November 2004)
  3. 2010 European sovereign debt crisis (Wikipedia)

PS I will add more references here as I find them

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Ένα σχόλιο στο The Greek public debt crisis

  1. Παράθεμα: 2010 in review « Azimout

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