What Can Greece Learn from the Crisis so Far?

Abstract

The debate over how Greece has reached this point has been going on for many months. The question, as expected, has been and continues to be the subject of political conflict between Greek political parties, mainly between New Democracy, which was in charge of the country until the national elections on 4 October 2009, and PASOK, which took power immediately afterwards. Overall consideration of the data shows that the country could have avoided appealing to the Support Mechanism if measures to reduce the deficit had been taken in time. This, unfortunately, did not happen, due to a series of failures, omissions and mistakes by the PASOK government, but also due to the strategic political choice of the then government, during the last quarter of the year, to ‘inflate’ the deficit. The Greek economy has certainly displayed serious and lasting structural problems, such as limited competitiveness, a large public debt, corruption, the presence of multiple conflicting laws, an inept public sector and extensive state intervention in the economy. All the governments of the last 30 years are responsible for these weaknesses; they did not dare to promote the appropriate reforms in time. The New Democracy government, in which I participated, also bears some responsibility, of course, because it hesitated when applying the radical structural changes required to rationalise the Greek economy. Given the consequences of the financial and credit crisis that began in 2008, almost all EU countries presented a high deficit and debt in 2009. Characteristically, in that period, the majority of European governments failed to accurately forecast deficit levels. For example, in the Stability Programme submitted in early 2009, the Netherlands forecast a surplus of 1.2 % of GDP, while ultimately reaching a deficit of 5.4 %. Malta forecast a deficit of 1.5 %, but ultimately reached 3.8 %.