When and why did the Greek economy start to tank?
In: Economics
I came across this video recently, offers some really interesting historical context for this subject:
Well it was during the 2008 recession. At that point most European countries had economic difficulties, but by 2010 most of them had recovered while Greece was still in difficulties. It’s at this time that Greece debt increased, but when other countries stabilised their debt by 2011, Greece kept getting more and more debt, their inflation started to drop and went into deflation in 2013. At this point, they should have been able to recover, but since they were using the Euro, they couldn’t do what they want with it to fix their deflation problems, which lasted until 2017.
That said, I’m don’t know if Greece could have fix the problem faster is they were not in the Euro zone, because they have an horrible track record when it come to inflation control. From mid 70s to mid 90s they had over 10% inflation, going up to 35% at some point. Greece was never a stable economy.
They had all sorts of clauses that meant they were spending more money than they brought in. You could retire at 50, and if you were in what was deemed to be a ‘specialist’ job – like hairdressing, for example – you got a fat pension.
They got bailed out by Germany at silly interest rates, spent it all again, got bailed out at higher interest rates, and now are tied down so hard that they’re basically a slave nation.
Imagine I tell you I’m about to get a great new job, and if you loan me some money, I’ll totally be able to pay you back, and then some. It’s looks like a pretty sweet job, so you say why not.
I start living large, nice house, fancy cars, so that job must be working out. I am making my payments, with interest, but I am also asking for more loans. I show you spreadsheets that prove how the money is flowing in, and since I am offering to pay interest, you keep up with the loans.
Fast forward several years. I’ve kept on living large, but I owe you a *lot* of money, more than you think I can pay back. On paper, it is a good investment because of the interest, but you are starting to get suspicious. You snoop around, and find out I completely lied to get the job, wasn’t doing very well at it, and those spreadsheets I showed you were completely made up. I am a total fraud, living a lie so you would loan me the money that supported my opulent lifestyle.
So what do you do?
You could cut me off. I’d lose my house and car, probably my job, and you would be out a lot of money.
Or you could keep loaning me some money, on the condition I cut back, get my act together and get into a position where I can pay you back. You might even forgive part of the debt in the hope of seeing at least some of it.
The problem is, I really like my house and car, and don’t want to move into an apartment and ride the bus. Every time you try to get me to cut back, I drag my feet, throw tantrums, call you a bully, come up with wild, unworkable alternatives, and take no real responsibility for my actions. Each month, when the bills come due, I threaten to just not pay anyone and become homeless if you don’t do things my way. You are pretty fed up with me, and figure things will end badly no matter what, so why throw good money after bad?
That is pretty what happened with Greece. They lied their way into the eurozone and lied about their economy, all the while using their eurozone clout to borrow money like crazy and spend it on useless public sector jobs and tax evasion. When they were found out, they blamed the lenders and instead of trying to change their ways elected leaders who promised they could solve the problem with fairy dust and unicorn farts.
Latest Answers