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ELSTAT: Greece’s GDP shrunk by 26% since 2010, public debt surged

Greece’s GDP shrunk by 61.6 billion euros (26 percent) since 2010, the time span when three bailout memorandums with institutional creditors were signed and implemented, figures showed this week.

Additionally, general government revenues decreased by five billion euros, with public sector wages, pensions and welfare benefits cut by 19.13 billion euros. At the same time, the public debt surged up by 52.3 percent of GDP, reaching the non-sustainable level of 179 percent of GDP.

Conversely, implementation of the memorandums eliminated primary budget deficits that were endemic to Greek state budgets, with the “milestone” being the 15.1-percent deficit, as a percentage of GDP, that was recorded in 2009. Eight years later, and under the weight of creditors’ terms, the Greek state posted a 0.7-percent budget surplus in 2016.

The figures are included in a report, entitled “The Greek Economy”, published by Greece’s now independent statistical agency, the Hellenic Statistical Authority, better known by its Greek-language acronym, EL.STAT.  The intent, according to EL.STAT, is to update figures for the past several years.

Specifically, Greece’s GDP in 2009, in current rates, reached 237.534 billion euros. Seven years and three bailout memorandums later, Greece’s GDP had fallen to 175.888 billion euros at the end of 2016, on a yearly basis.

The primary reasons, as cited, are austerity-driven fiscal policies, which significantly curtailed incomes and consumption. The biggest drop in annual GDP, in fact, was recorded in 2011, when GDP shrunk by 19 billion euros (8.4 percent in current terms), from 226.031 billion euros (Dec. 2010) to 207.029 billion euros at the end of December 2011. – via naftemporiki

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  1. Martin Baldwin-Edwards

    The past tense of the verb “to shrink” is shrank. Not shrunk – -which is the past participle, e.g. Papandreou’s shrunken head.

  2. While it is correct that “austerity-driven fiscal policies significantly curtailed incomes and consumption”, the statement could be viewed to imply that there was an alternative to austerity; that austerity was a conscious policy decision among possible alternatives.

    The Greek state registered a deficit of 36 BEUR in 2009, the last year that Greece was able to borrow from markets. The state not having any liquid reserves, that 36 BEUR had to be borrowed. By 2010, the only remaining available lenders/financiers for the Greek state were the official lenders (Eurozone, IMF). Had those official lenders refused to lend, the Greek state would have had to cut at least 36 BEUR out of total expenses of 128 BEUR, an absolute nightmare. As it happened, the official lenders still financed a deficit of 25 BEUR in 2010, 21 BEUR in 2011 and 17 BEUR in 2012. In fact, the official lenders financed Greek deficits until 2015 (2016 was the first year with a small surplus of 1 BEUR). In short, austerity was not the consequence of someone saying “we won’t finance your deficits any longer”. It was the result of someone saying “we will have to reduce financing your deficits going forward”.

    Now one may say that the deficit included horrendous interest expenses. Ok. Before interest expense, the deficit was 24 BEUR in 2009, reduced to 12 BEUR in 2010 and 7 BEUR in 2011. In short, from the perspective of the lending countries, there was the feeling that one was still financing profligacy of the Greek state more than necessary. A feeling which frequent revelations at the time of Greek state profligacy was not helped (buzzword: pensions for blind people with good eyesight).

    I don’t think there is any reasonable person (certainly none of my Greek friends) who would not have argued that the Greek state is a beast which needs to be curtailed. The unlimited fiscal irresponsibility of the Karamanlis government defied description (in fact, the current President also carries a lot of responsibility).

    The valid criticism is not that the Greek budget was unduly strangulated. Greek national income is the sum of public and private sectors. If the public sector is, justifiably, starved, it should be accompanied by growth measures in the private sector in order to avoid a collapse of national income. That not having happened is what needs to be blamed.

    Very early on in the crisis, the then CEO of the German Allianz said in an interview: “We (Germany companies) will have to shift our foreign investments from far-away countries to the Southern periphery”. I think graduates of Economics 101 would understand that. However, macro-economists like Varoufakis will argue that this doesn’t work because when an economy is in a downward spiral like the Greek economy was in, only the public sector can re-start the animal spirits through massive investments. In the ivory tower that may be true but in reality that would require a functional state that is capable of making wise investments (and lenders’ confidence in that!).

    Why the above simple Economics 101 lesson did not enter the minds of the political elites will be debated by future historians. In my opinion, there was one point where Greece would have had the opportunity to force this issue. After Papandreou announced his referendum, the Europeans lost their nerve and got scared. If Papandreou would have had the guts of his father, he would have understood that the time to strike a good bargain is when the other side is running scared. Nice would have been the time and place for Papandreou to keep his cool and to tell his counterparts something like: “Look, I understand your problem but please understand mine, too. If you want me to call off the referendum, I need to go back home with something in exchange in order to survive politically. I need your commitment for at least 10 BEUR (20 BEUR would be better) in the Greek private sector. In the grand scheme of things, 20 BEUR more will not make or break the situation. And, by the way, the 20 BEUR will hopefully be profitable investments for you. If you can’t do that, I will regrettably have to stick to the referendum. It’s up to you”. Regrettably, the son did not have the guts of his father.

    I am not at all suggesting that Greece could have come out of this without any pain. I am suggesting, however, that the pain could have been a lot less but not because of less austerity in the public sector. Instead, because of massive EU-steered investments in the private sector.