1.
Until last month, the news from Greece were largely mundane, which was a welcome change from the excitement of the early 2010s, when a chain of events (the country’s virtual bankruptcy, the EU-ECB-IMF bailout, harsh austerity, deep recession, social strife, and political conflict) caught the attention of the world media. In a few bitter years, the national economy shrank by over a quarter, while tax hikes and benefit cuts caused disposable incomes to decline by even more.
But that was then. More recently, on the rare occasions when there were any news worth reporting, they were broadly positive. Life under Covid was as grim as everywhere, yet ordinary Greeks surprised themselves by sticking to the rules with less fuss than the Dutch, while their government surprised everyone by putting in place a reliable, user-friendly digital infrastructure faster and better than Germany’s. Greece’s economy, heavily dependent on tourism, plunged in lockdown deeper than more diversified economies, yet bounced back higher thereafter. The unemployment rate (10.8% in January 2023) was still one of the highest in the EU, yet a far cry from its peak a decade ago (28.7% in November 2013).
Even more excitingly, Pfizer’s decision to create a research centre in Thessaloniki (Greece’s second largest city, where Albert Bourla, the company’s CEO, was born and raised), and Microsoft’s and Google’s to invest in cloud computing, or the unlikely emergence of Athens as a film industry hub (as seen in Tehran, the Netflix series, shot entirely on location), cheered Greeks and added to the sense that the country was out of the woods.
Not least, businesses and the government looked forward to the inflow of funds worth billions, earmarked for Greece courtesy of the Recovery and Resilience Facility and other EU programmes. All in all, economic sentiment at the start of 2023 was bullish.
2.
For my generations of Greeks born, say, last century, it was difficult to disregard a sense of déjà vu. We had been there before: in 2004, Greece won the UEFA European Football Championship, successfully organised the Olympic Games in Athens, and even came third in the Eurovision Song Contest, all in quick succession: annus mirabilis. Then came the forest fires of 2007, the riots of 2008, the debt crisis of 2009-2010, and the political instability of 2010-2015, when the country discovered that its prosperity was built on sand.
Things precipitated when the government taking office after the October 2009 general election found that the budget deficit on its hands was not 3.7% of GDP (as reported by its predecessor) but over four times as large. The market turmoil that followed put at risk the solvency of Greece and, briefly, the integrity of the euro area as a whole. The bailout eventually concocted threw a lifeline to a penniless government. At a stroke, it also removed power over domestic policy away from the country’s political class, handing it over to unelected middle-ranking officials in Brussels, Frankfurt, and Washington DC. The humiliation added to the sudden impoverishment, fuelling a nationalist backlash across the political spectrum, which transformed Greek politics almost overnight. The rest, as they say, is history.
3.
This time round the nagging suspicion that behind the hype Greece remained a second-rate country was brought home by the devastating train crash of Wednesday 1 March 2023, in which 57 people lost their lives. Although the inquiry into the causes of the disaster has barely started, we have been officially told that automated safety systems worth hundreds of millions, paid for by taxpayers (Greek and European), were left to rot, while railway traffic control on the country’s one and only mainline was conducted manually. All it took was a moment’s distraction by one station manager, duly arrested and prosecuted: an accident waiting to happen.
It is too soon to tell what the consequences for Greece’s economy will be in the years to come. Possibly none: after all, life goes on – except of course for the lives that ended in the crash, and those forever blighted by it. Still, with a demoralised government, under attack by the opposition, the latter not exactly renowned for its competence when in office, and a general election looming, the country looks ripe for a new cycle of instability.
This is not to say that we are on the verge of a new Greek crisis. In 2010 the economy collapsed after a long reckless run (on steroids). This time the stakes are less dramatic, though no less significant. It is a question of whether the economy can break out of its lower-league status onto a path of sustainable growth, or it should resign itself to near stagnation for the foreseeable future.
4.
Casting a gaze over the last fifteen years or so, is the Greek economy in a better shape now than when the debt crisis broke out?
Living standards are certainly lower. In spite of its recent surge, GDP is still 16% below its 2009 level. Things look a bit better in per capita terms (GDP per head down by 12% over the period), but then again population decline is hardly cause for celebration. By analogy, although unemployment has now fallen to pre-crisis levels, the exodus of at least half a million mostly young mostly highly educated Greeks last decade means that the number of people in employment (4.1 million last summer) remains well below what it was before the crisis (4.5 million in summer 2009). As for average wages, they were 25% lower (in 2021) relative to their level in 2009, in real terms.
As regards the economic fundamentals that made the headlines back in 2010, the picture looks more reassuring: public debt has been stabilised in value terms (although of course it has risen as a share of GDP), while the budget deficit is set to reach 2% of GDP in 2023 (it was over 15% in 2009).
The narrative of the euro crisis as a tale of fiscal irresponsibility helped determine the course of events, but was soon set aside by economists across the spectrum, who now view it as mostly a result of current account imbalances: after all, why else should Spain, with a public debt below Germany’s, also get in trouble? From this perspective, the transformation of Greece has been remarkable: in January-September 2022, the exports-to-GDP ratio reached 38%; over the same period of 2008, the pre-crisis peak, it had amounted to a mere 24%.
On closer inspection, the exports miracle is less spectacular. Imports have also risen, so the current account deficit, having fallen below 1% of GDP in 2013-2015, has risen again to 10% (it had been 15% in 2008). Over a quarter of export earnings are accounted for by the petroleum industry, which imports crude oil, refines and re-exports it, making good money but creating few jobs. The share of medium- and high-tech goods in manufacturing exports has fallen since before the crisis. And tourism is estimated to contribute almost half of all exports, as well a quarter of all jobs and a fifth of GDP. Dependence on tourism (‘our heavy industry’ as government ministers and business spokesmen like to repeat) is problematic in the short-term, given that most of the jobs it provides are low-skill and low-pay, and unwise in the longer-term, given that it is vulnerable to geopolitical risk, not to mention climate change.
5.
In a way, good and bad news are both the legacy of the austerity and internal devaluation – the doctrine that since Greece, as a member of the Eurozone, could not devalue its currency out of the crisis, it should instead devalue wages and prices. Wages have duly fallen, partly because of the recession, and partly by fiat (the cuts in public sector pay in 2010, and the 22% cut of minimum wage in 2012). Prices never fell, and are now rising faster than in the rest of Europe, evidence of the fact that product market deregulation (also advocated by the EU-ECB-IMF Troika) was less enthusiastically pursued, and more successfully resisted, than the labour market sort.
In retrospect, the trouble with Greece’s bailout was not so much that it imposed austerity – what else is there really for a country with a budget deficit of over 15% of GDP? (Not that this failed to stop Varoufakis from playing sorcerer’s apprentice, or Tsipras from winning two general elections and one referendum in a row, but that is another story.) On a different level, the Troika’s approach rested on the unspoken assumption that Greece is a low-performing economy, and that it should stop pretending otherwise. So the bailout deal made sure Greece remained a low-performing economy for the foreseeable future.
Investment, especially of the productive kind, is now less than half what it was pre-crisis. Adult skills – of workers and managers – remain incredibly low, especially if judged by what the persons concerned can actually do. Public administration has been digitalised, which is great, but in other respects remains unhelpful, plus is now understaffed. Justice remains excruciatingly slow, and not as impartial or independent from government as it should be. Infrastructure, supported by EU funding, is a mix of modern and antiquated, as the recent train crash made plain. All in all, most ingredients of sustainable growth are missing.
This was not lost on the Committee headed by Sir Christopher Pissarides, Nobel Laureate and LSE Professor, whose recommendations were embraced by the current government. But progress has been disappointing. The Greek economy seems trapped in a low-added value low-skilled low-wage trajectory.
