Montreal, Tuesday, July 14, 2015 – The Greek crisis unfolding before our eyes is the result of a long history of budgetary irresponsibility and ruinous public spending decisions, explains a Viewpoint on the situation in Greece published today by the MEI.
“The Greek public finance crisis did not appear overnight. The Greek government has been living beyond its means for a very long time,” says Mathieu Bédard, economist at the MEI and author of the publication.
Indeed, over the past 25 years, the Greek government has registered budgetary deficits averaging 9.5% of the country’s GDP—nearly three times the eurozone average. It even hit a record deficit of 23.3% in 1990. But these deficits were not always apparent in national statistics, the publication explains, a fact which allowed Greece to join the eurozone in 2001 even though it did not meet the criteria. Greece actually has a rich tradition of falsifying its national accounts.
Yet the Greek economy had experienced respectable annual economic growth before the financial crisis of 2007-2008, with GDP per capita increasing by 66% from 2000 to 2008. This growth was misleading, though, as it was in part stimulated artificially through the use of large budgetary deficits.
Mr. Bédard adds, however, that while neither European institutions and governments, nor the International Monetary Fund, are responsible for the choices made by the Greeks, they are on the other hand entirely responsible for their decisions to lend to a government that was never willing to reform itself. “Today, Greece’s international creditors are having a hard time finding a way forward, for geopolitical reasons and for fear of creating a precedent that would immediately be exploited by other heavily indebted European countries like Spain and Italy.”
Other European countries have gone through serious crises and have made the necessary sacrifices. Latvia, for instance, was one of the countries most harshly affected by the 2008-2010 economic crisis, but bounced back quickly after reducing public spending by an amount exceeding 15% of its GDP.
Today, Greece’s debt has probably become too large to be reimbursed in its totality, points out Mathieu Bédard. And unfortunately, whatever the specific outcome of the present crisis, the Greek people, and the taxpayers of other European countries as well, will suffer the consequences of this gross negligence.
The Viewpoint entitled “Greek Tragedy: The Result of Longstanding Budgetary Irresponsibility” was prepared by Mathieu Bédard, economist at the Montreal Economic Institute. This publication is available on our website.
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