The Greek Crisis: Tragedy and Opportunity

Andrew Wilber

Assignment: “The Greek Crisis: Tragedy and Opportunity”

1.)

a. Analyze briefly the political, structural, institutional and cultural factors that have contributed to the country’s fiscal crisis.  

Greece has a long legacy in the post-war era of government involvement in the welfare of various industries as well as its individual citizens.  Throughout the last 30 years, the political parties in Greece have ran large deficits as a result of populist policies.  Some of the most monumental demonstrations of these policies include minimum wage increases and pension contributions, establishing a national universal healthcare, siding with labor unions, and others that have increased the public deficit drastically.  Having the ability to control monetary policy was a critical benefit for Greece up until it adopted the Euro in 2001.  This gave the Greek government the direct ability to devalue their currency.  Although devaluing currency allowed inflation to soar, it did allow Greece to avoid crises resulting from excessive government spending exceeding GDP growth.

This lent itself to a cultural component unique to Greece in the EU.  With pensions and wages growing significantly, and more jobs being added to the public sector, there is little to motivate Greece’s workforce to increase productivity.  Workforce productivity in Greece consistently trails many of the EU countries, even though Greece’s shipping capacity and currency devaluations before the adoption of the euro created excellent opportunity for excessive exports to pull the current account out of deficit.  Greek citizens became accustomed to the idea that the government would not cut social benefits as long as they could avoid crises via monetary policy.  Another component continuing to fuel Greece’s large government deficits in the post-war era comes in the form of unpaid taxes, summing to 8% of GDP in 2007.  Greece has a long tradition of lax enforcement of tax collection that continues to damper their ability to reverse deficits.