Revisiting the Greek crisis

The 2009-2016 Greek crisis left a profound mark on the history of the euro zone. The causes of the crisis are well known: in the lead-up to the subprime crisis, Greece had huge fiscal and external deficits due to lax fiscal policy, tax evasion and the country’s small industrial base. The rise in risk aversion caused by the subprime crisis made these deficits impossible to finance, leading to the need for Greece to resort to international aid. The problem was then the strategy that was pursued: Greece was asked to run a sufficient primary fiscal surplus to restore its solvency despite its very high debt level. This led to cuts in all public spending, including spending necessary for growth, and to a social crisis. There is now a consensus that Greece’s debt should have been restructured much more significantly than what was done in 2012. How is Greece faring today? It no longer has a fiscal or external solvency problem, but the country’s living standards are very low, productivity has not picked up, deindustrialisation has continued and the economy depends heavily on the tourism and real estate sectors and has not diversified. Greece may no longer be in crisis, but its economy has not recovered either .