Visitors to Athens ask us a lot of questions about the Greek economic crisis, which is one of the reasons we launched our Greek Crisis in Context walk this month—to explain and contextualize this current event. The headlines and photos of the last three years have been more confusing than not. What exactly has caused the Greek economic crisis? What is the effect on Greek society and politics? How do I separate myth from fact?
We sat down with our docent, Antonios, an economist in Athens to learn more, and he helpfully charted a path through the misconceptions surrounding the Greek situation. Herewith are four common myths about the crisis.
Myth 1: The lazy Greeks… Statistics confirm the opposite. The working hours for Greek people are above the EU average and far above the working hours of German workers. Of course, working many hours does not necessarily mean that you are productive. However, being unproductive is different than being lazy. Productivity results from investment—in new technologies, research and development, and education—all of which are casualties of the rescue plan mapped out by the Troika. (The Troika, by the way, is slang referring to the three international organizations deciding Greece’s economic future: the European Commission (EC), the International Monetary Fund (IMF), and the European Central Bank rescue plan.)
Myth 2: European solidarity for Greece The truth is that only a small percentage of the Troika’s loans are finding their way into the Greek economy. Nearly 85% is repaying old Greek debt which sits in the portfolios of private banks all over the world. So, in a sense, much of what has taken place thus far is a huge bailout of private banks.
Myth 3: The “debt haircut” is a real debt relief. In economics a “haircut” typically when bondholders are asked to take a loss by writing down their loans. (The opposite of this is a bailout, in which taxpayers take the loss by bailing out the country.) Normally a haircut reduces the public debt burden and may help an economy. However, to make it work, a haircut has to be transparent. For the Greek haircut this is not the case. We still don’t know the full details. Additionally, the haircut should be followed by a long grace period and low interest rates in order to avoid the accumulation of new debt. Unfortunately, this is not the case either. Finally the haircut must be accompanied by measures that enhance sustainable growth. But, in the case of Greece there are real fears that the draconian austerity measures will continue, plunging Greece further into recession. The current haircut includes the bonds of the Greek public pension and insurance funds, hospitals, universities, and government bonds where individuals hold their savings. This is a disinvestment in Greece that will have longterm social and economic consequences.
Myth 4: Austerity will lead Greece to a sustainable public debt level and growth. So far the austerity program has reduced Greek GDP by roughly 25% and public debt has risen more than 120% since the Troika’s plan was implemented. Just this month the IMF has recognized that there are serious errors in the Greek plan. However, political forces remain steadfast that austerity is the only solution. The social consequences of this could be immense.