Home > Economic History, Euro, Growth > The Greek Economy – implosion was always on the cards!

The Greek Economy – implosion was always on the cards!

The Greek economy is now into its sixth year of recession and it is no surprise that its economy is in tatters. Brian Gaynor from the NZ Herald wrote a very good summary of how Greece got into the mess that it is currently in. Below are some statistics over the last 6 years and this year sees a fifth year of recession – negative GDP for two consecutive quarters.

So what were the reasons for such a collapse on the Greek economy.

1. Tax avoidance has been endemic within the country especially amongst the higher income groups. Therefore there is a huge shortfall in government revenue relative to their expenditure. This means a government debt-driven recession.

2. The Greek economy boomed, like many others, with the availability of cheap credit in the early 2000’s and with the Olympics in Greece in 2004 economic activity was moving very nicely indeed.

3. Hosting the Olympics proved to be very costly in the long-run and there was little planning regarding the use of facilities post games. Many stadiums lie idle.

4. The Greek government was borrowing heavily overseas to fund its deficit.

5. Low interest rates and cheap money from overseas fueled a residential property boom – prices went up 100% from 2000-2008

6. Investment in assets with borrowed money that generated no overseas income.

Today the building industry has collapsed and residential property prices are down 20% from their peak in 2008 – isn’t this a familiar story worldwide especially with the sub-prime escapade. Also, as in Spain, there is a huge level of youth unemployment in Greece – 52.8% of under 25s are unemployed. As Brian Gaynor said at the end of the article

“The basic problem is that most Western countries, including New Zealand, have lived well beyond their means over the past 20 years, and Greece is just the worst example of this. The borrowing party is over and we are now experiencing the hangovers, particularly in Europe. These hangovers are not easily cured.”

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  1. Simon
    June 25, 2012 at 9:08 pm

    This analysis is simplistic to the point of error. The Greek economy has collapsed largely because it does not have a sovereign currency. The union has led to economic collapse for Greece. Economic collapse is different from currency collapse. Its much worse. Unfortunately the situation is so far from over its not remotely funny.

    It’s all very well blaming Greece but even the most stupid drug pusher would not lend money to a junkie to sell them dope and then blame them for it when they could not pay it back. All their mates would be saying you must have been out of you mind to lend money for dope to that junkie.

    The machanics of the European issue are fairly complex but they are pretty widely understood. I have not read the Gainor article but I would hope that he is able to represent the situation reasonably fairly.

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