What is the real cost of the Greek crisis?

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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.

In Figure 1 below, we see the Greek real GDP from the 1990’s to 2018. We can clearly see the constant, in the long run, upward trend. This trend is calculated an average growth rate of about 3% per year. The real GDP reaches a maximum of 64,000 units and after the crisis drops by 26.5% to 47,000. Nonetheless, in order to measure the real cost of the crisis we must compare the drop to 47,000 in 2018, with the potential real GDP without the crisis with an average growth rate of 3%. In this scenario the Greek real GDP in 2018 would have reached 80,000 units. Thus, Greeks suffered a drop in their income from the potential 80,000 to 47,000 units. This drop is equal to 41.25%! The decrease of total income is actually much worse than what is usually reported in the news. Thus, Greeks are 26.5% worse-off as compared to their pre-crisis income but 41.25% worse-off as compared to their income today should the crisis never occurred.


Greek real GDP for the last 30 years.

The impact of the debt crisis on the debt-to-GDP ratio is even more profound. With the average GDP growth rate of 3% before the crisis, today Greece’s GDP would have been approximately €363 billion. Thus, with a total current debt of €345 billion, the debt-to-GDP ratio would stand at 95%, very close to the average Eurozone indebtedness as we can see in Figure 2. Today, Greece’s GDP is approximately €200 billion, and the debt-to-GDP ratio reaches 172.5%. As a result, Greece has the second highest debt ratio in the world after Japan that reaches 253%, as shown in Figure  below.

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