6. Seven Years of Austerity and the Greek Dra(ch)ma: Three Economists’ Views and a Comment

Eighteen years earlier, in 1992, the Treaty on the European Union was signed in Maastricht by the EU ministers of finance and foreign affairs. Under this agreement the idea of the single currency was introduced and the main principles of economic and monetary policy were established. Among others one key element of the Treaty was that the member states should refrain from high levels of public deficits [The European Commission (EC) 1992]. However, from the early 2000s many EU countries that signed the Treaty of Maastricht failed to keep their deficit and debt at low levels (see Figs.  6.1, 6.2).

In Figs.  6.1 and 6.2 we distinguish the Eurozone countries into five different groups depending on the geographical region to which they belong. In particular, the first group consists of the ‘Inner Six’ countries (e.g., Belgium, France, Germany, Italy, Luxembourg and The Netherlands), the second group the so-called ‘PIGS’ (i.e., Greece, Ireland, Portugal and Spain), the third group the Central European countries (e.g., Austria, Slovakia, Slovenia), the fourth group the Baltic countries (e.g., Estonia, Latvia, Lithuania) including Finland and the fifth group is Insular Europe (i.e., Cyprus and Malta). Figure  6.1 shows that government deficits as a share of GDP in the period 2000–2007 were among others quite high for France, Germany, Italy and The Netherlands (countries of the Inner Six group) and Portugal and Greece (countries of the PIGS group). Data for Greece’s deficit are available from 2006 and onwards. However, the OECD’s economic outlook for Greece reported that the Greek government balance sheets were suffering from high levels of deficit even from the early 1980s. In addition, according to many views (although not scientifically proven) a debt-to-GDP ratio could be optimal if it is around 60%. But why is this ratio so important? Simply because the higher the ratio the more difficult it is for the country to repay its debts and hence the higher the probability (for the country) of being downgraded by the rating agencies (such as Standard & Poor’s, Moody’s and Fitch). In Fig.  6.2 data report that among the euro area countries only Belgium (though with a decreasing trend) and Italy from the Inner Six group and Greece and Portugal from the PIGS group had a debt-to-GDP ratio higher than 60%. Nevertheless, despite these disparities between the countries that followed the rules imposed by the Treaty of Maastricht and those that faced difficulties in doing so, the common currency seemed to function well (from 2002 to early 2008 when the financial crisis began). But the weaknesses and the problems for the single currency were to appear shortly after the global financial crisis of 2008–2009, which led to the well-known EU sovereign debt crisis (of Greece, Ireland and Portugal) (Tables  6.1, 6.2). After the condemnation of Greece by the EC because of misrepresentation of its national statistical data, the newly elected socialist government was forced (by the events) to revise the estimations regarding the level of general government deficit (notably Eurostat reports data related to government deficit for Greece after 2011 see Fig.  6.5) from 5 to 7.7% for 2008 and from 3.7 (the figure predicted by the previous government some months earlier) to 12.5% for the year 2009. Already, since October 2009, the 10-year government bond yields started to rise (see Fig.  6.6). From Fig.  6.5, we can notice that when the Greek Prime Minister (PM) George Papandreou called on his EU partners and the IMF to provide financial assistance (23rd April 2010), the long term government bond yields reached levels around 8% and after that the rates followed a rising pattern. The economic calvary of Greece had just begun.

Gross Domestic Product After the announcement of the referral to the support mechanism by the ex Greek PM George Papandreou and the implementation of strict fiscal measures by the subsequent governments, the macroeconomic indicators of the Greek economy do not seem to have improved. In particular, GDP per capita growth (see Fig.  6.3) shrank on average by 5.85% in the period 2010–2013 and from 21,900 (in 2010) to around 18,100 (in 2013) US dollars (at constant 2005 prices, see World Bank 2015). In 2014, the Greek economy displayed some signs of improvement (the GDP per capita increased from 18,100 in 2013 to 18,400 US dollars in 2014), though at significantly lower levels than that of the pre-crisis period. Similarly, the country’s GDP fell from 299.6 billion US dollars in 2010 to 238.5 billion US dollars in 2014 (World Bank 2015). Hence, over a period of four years Greek society’s wealth was reduced by 20%. Stiglitz ( 2015a) cannot recall any other depression (like Greece’s) that resulted in such a devastating impact. Monetary Aggregates (M1, M2 and M3) and Inflation Rates See Figs. 6.7, 6.8, 6.9 and 6.10.

Consumer Confidence Index Figure  6.11 (European Commission 2015) reports the level of the trust that consumers have towards the Greek economy. The importance of this statistic lies in the fact that consumers are more willing to spend money since they feel more certain about their financial and career prospects. The trend (dashed line) shows that the consumers’ confidence in Greece after 2010 fell sharply, which had a significantly negative impact on private consumption (see Fig.  6.10).

Unemployment Rates See Figs. 6.12, 6.13 and 6.14.

Maastrict Criterion Interest Rates See Fig. 6.15.

Athens Stock Exchange (ASE), Private Sector Credit Flow and Foreign Direct Investment (FDI) See Figs. 6.16, 6.17 and 6.18.

Healthcare Access, Poverty Risks, Suicides and Birth Rates See Figs. 6.19 and 6.20.

At the same time, since much has been written about the problem of competitiveness of the Greek Economy, the latest ranking lists reveal that little has been achieved in this field (see Fig.  6.21). In particular, after five years of restrictive policies the position of the Greek economy in the global rankings does not seem to have improved dramatically. In addition, the credit default swap (CDS) spread (at basis points) is still at high levels (see Fig.  6.22), just above the dam of two thousand basis points, suggesting that the risk of a credit event is too high (the cost of insuring against a Greek default). Verifying the lack of competitiveness and the high risk of bankruptcy of the Greek economy the Big Three rating agencies [namely, Standard & Poor’s (S&P), Moody’s and Fitch and the Rating and Investment Information Inc. (R&I)] negatively assessed the creditworthiness of the bonds issued by the Greek government (see Fig.  6.23) in the period covering 2009–2015.