Greece: New Beginnings v/s Past Sins

Greece was wise to recall how Germany’s flight was financed by Greece’s doom. Not surprising though, Germany was the same country that had hailed the austerity program post financially bailing Greece out. And even while the IMF apologized for imposing severe sanctions on Greece, Germany did not. When Greece lost investors, Germany gained them. And then it paid heavily for the Greece bailout programs. That’s another story, however.

Coming back to Greece, it’s handling of the covid crisis has been exceptionally well. Though admittedly it depended heavily on tourism, and had planned investment in the same, the plan backfired in the pandemic. Ergo, Greece contracted economically.

However, it turned a page. And won the confidence that was lost in the populist led Tsipras’s administration (the previous Greek Government).

Greece must eliminate bureaucracy that threatens political intervention in judicial affairs. Administration often works at maximizing the interests of local corporations and eliminating the global competition entering Greece. Thus, if the government hopes to catapult privatization and increase inflow of foreign investment it must make structural changes to administration.

We can just hope that the series of reforms in public administration, labour laws, govt spending are further upgraded to tackle this problem.

Next, focus must be directed at blocking brain drain and retaining the confidence of the Greek Diaspora to return to Greece.

To sum up its present state, the Greek economic growth rate is not extraordinary but the resilience is. Anyone aware of the state Greece was in until late 2018 will agree. But perhaps revisiting its past Greece could come up with greater insights for the future.

Let us, therefore, get back to when it all started. The old story begins in 1930’s.

Post the Great Depression Era of 1930’s, the GDPs of several countries far and wide were gasping for breath. Two countries, however, did fairly well than their counterparts: Japan and Greece. Greece, in fact, had the second highest GDP growth rate in the world – from 1950 to 1970.

Alas! In 1967 the caretaker Greece government was overthrown by the military junta and Greece was politically and economically crumbling. In the early 1970’s Greece emerged out of the national turmoil and a left leaning liberal government took over.

And that marked the beginning of the disaster that would boomerang years after. The government pursued overambitious public sector dominated economic policies. (Note that there have been countries especially Nordic countries whose public sector policies have been rewarding, but Greece erred time and again.)

The public spending was too high to be sustainable, crippling the private sector. Govt borrowings was at an ever increasing high and the fiscal deficit marched upward: sustaining two digits for two decades.

In this era, internal policies gradually crippled. Inflation surged and averaged at 25% for the next many years. Trade Unions rose in power, public sector was plagued by bureaucratic forces, prospects of privatisation were doomed, legislation was in deep slumber, in fact, allegedly corrupt, and the judiciary made no sense.

This sowed the seeds of internal collapse: tax evasion, manipulated data projections and less productive economic capacity for the public that knew the govt could always borrow to walk them through. But the interest rate for a country like Greece was brutal.