Abstract

Despite the vast amount of empirical work performed on the defense–growth relationship, the impact of military expenditure on public debt is a largely neglected topic. The recent Greek debt crisis brought to the forefront the role of military expenditure as well as the inefficiencies and the inability of the EU to deal with the European debt crisis. This article investigates the role of military expenditure (among other factors) in the evolution of the Greek debt over the period 1970-2011. Greece is a particularly interesting case in this regard, given its high military burden since 1974 and the recent debt crisis that led the country to sign a bail-out package presented by the European Union, the European Central Bank, and the International Monetary Fund, which involves extreme austerity measures and cuts in public spending. Employing the ARDL approach to cointegration, this article concludes that military expenditure and arms imports have had an adverse (i.e., increasing) effect on Greek public debt in the short-run, while investment has helped to reduce debt both in the short- and the long-run.

Highlights

  • The Greek debt crisis started in 2009, soon to be transmitted to the rest of Europe: Mediterranean EU countries—Italy, Spain, and Portugal—were most profoundly affected

  • This article argues that, among other factors, military expenditure contributed to the build-up of Greece’s public debt. It criticizes the EU as, since 1981, when Greece became a member of the European Community, the country was indirectly compelled to import military equipment from EU countries in order to deal with the perceived Turkish threat

  • The two main objectives of the article are to assess the fundamental problems of the country, along with the role of the EU, and to provide some empirical evidence regarding the role of military expenditure in Greek public debt by employing the ARDL approach to cointegration over the period 1970-2011

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Summary

Conclusion

This article has provided an overview of the Greek debt crisis, paying special attention to the role of military expenditure and arms imports as well as to the role of the EU. The results clearly suggest that investment reduces public debt, both in the short- and long-run (when either the military expenditure or the arms imports variable is used). These findings carry important policy implications as Greece struggles to reduce its public debt. Military expenditure in general, and arms imports have been dramatically reduced in the post-crisis years, there has been no increase in investment This is not surprising given international investors’ lack of confidence in a country chaffing under a cruel austerity program and tight deadlines imposed by the EU, the ECB, and the IMF—not to mention the political instability following the election of a radical left wing-oriented government in 2015.

Fifth biggest importer
Early studies
Capacity to borrow internationally
Contribution of industry and agriculture
13. Fundamental problems
16. Suicide rate
17. Following other authors
19. The ARDL bounds approach
Findings
20. Accords with other studies
Full Text
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