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What is the real cost of the Greek crisis?

Dr. Periklis Gogas
Associate Professor



Nancy Dimitriadou


Department of Economics, Democritus University of Thrace

The Greek debt crisis led to an unprecedented reduction in the country’s real GDP by 26.5%. This recession is one of the largest crises that the world economy has ever seen. For comparison, the Great Depression in the US in the later 1920’s resulted in a GDP reduction between 25% to 30%. Moreover, the Great Depression lasted for four years, while the Greek crisis reaches almost 8.

Simply stating that Greeks lost 26.5% of their income paints a gruesome picture. The true impact of the crisis is even worse. We compare current Greek real GDP to the one in 2009 just before the crisis. By doing so we are not taking into account a very significant stylized fact of every economy: growth. All economies show a strong positive trend in their GDP time series. This is the result of a steady growth in the factors of production, i.e. human and physical capital. The available human-working-hours increase due to population growth and the amount of physical capital stock also increases over time as a result of investment in fixed capital. Last but certainly not least, an additional very important factor for continuous growth is the improvement in technology. Technology significantly increases the productivity of both human and physical capital.

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