Greece’s Sovereign Debt Crisis and its Economic Aftermath. Analysis & Lessons
Quite interesting a discussion was held – on the 7th of February 2024 – between figures who played important roles in dealing with Greece’s debt crisis at the presentation of (former Governor of the Bank of Greece and negotiator of the country’s accession to the euro area) Nikos Garganas’ book: Greece’s Sovereign Debt Crisis and its Economic Aftermath: Analysis and Lessons, just published by Kerkyra Publications – economia Publishing.
The discussion was moderated by the Chairman of the National Bank of Greece and of the Greek Banking Association, Professor Gikas Hardouvelis, who also happened to have served as Greece’s Finance Minister during a crucial time of the Greek debt crisis.
Professor Hardouvelis provided a brief synopsis of the book, noting that the book has an academic flair, staying clear of the politics and the personalities of the time, yet being quite precise on the factors causing the Greek debt crisis, its consequences, and its legacies, which continue to haunt us today. “The public opinion at large has not realized the roots of the crisis, thinking it is the Economic Adjustment Programmes that brought the crisis and not vice versa.” “It is thus important for our political system to learn the true causes of the crisis and not repeat the mistakes of the past. Those mistakes brought the Greek economy at the most precarious position in the post-dictatorship era.”
Professor Hardouvelis concluded that the book covers important topics for the majority of which there is wide consensus among economists. In some other topics there is diversity of opinion among economists, like for example the appropriate equilibrium exchange rate of the Greek drachma to the euro, or the role of political parties in prolonging the duration of the crisis. Hence, the book is rich in content and a “must read.”
Miranda Xafa, with extensive IMF experience and an author of an earlier analysis of the PSI operation over Greek debt (which was the core of the EU/IMF bailout operation) was prompt to stress he fact that “too many misundertandings persist as to what really caused the Greek crisis”; also, that the crisis was brewing long before it erupted. The write-off of 106 bn euros of debt (1/3 of the then-outstanding debt stock) and replacing it with long-term/low-interest bonds held by the official sector was an important concession on part of Greece’s creditors.
The fact that successive Adjustment Programmes opted for hiking tax rates rather than cutting public expenditure (a policy dictated by the IMF and the EU but accepted by successive Greek Governments) left Greee with quite a problem. Now, the main issue is how to get a minimum of social consensus so as to proceed.
IOBE research institute Director General and Professor of Economics at the Athens U. of Economics and Business Nikos Vettas made the strong statement that the depth of the crisis that Greece experienced should have taught its political class that such an experience should never be lived again – for the country and for its people. “The consequences of the crisis are still around us all”: both the workforce and the capital stock of the country have withered away.
Adjustment Programmes have aimed not only at debt alleviation but also at structural reform; still, fact that such reforms were experienced as being forced upon Greece did not help at a level of the “ownership” of measures introduced being accepted.
Current Minister of Finance Costis Hadjidakis, who also served in other ministerial posts during the adjustment effort, stressed the importance of Greeks realizing that “just as with households, also with countries: they cannot live beyond their means”, so that, even now that the Stability Pact rules have been relaxed, Greece’s policies should abide by strict discipline. As to reforms, “reforms need reformers, they need courage, but also they need alliances”; a minimum consensus within the country is of paramount important necessary.
Bank of Greece Governor Yannis Stournaras, who served as Finance Minister at the very depth of the crisis, said that it is essential for Greeks to dispel the myth that “Adjustment Programmes are the cause of the crisis” and to accept that “we brought the crisis upon our own heads”. The fact that Greece got from its partners 290 bn euros of financial support, of 20-years duration and at interest rates of around 1.2% should not be underestimated; if this alleviation had taken place earlier on, the end-result would be quite better – “but Greece’s partners were in a punishing mood”.
Nikos Garganas, as author of the book as well as actor of the Greek effort to join the euro, explained that his major concern was to counter persisting misconceptions around the causes of the debt crisis that are still pervasive in Greek public opinion and exert a pernicious influence on policy-making and on social life.
A family photo of the speakers.
From the left: Nikos Vettas, G. Hardouvelis, C. Hadjidakis, N. Garganas, M. Xafa, Y. Stournaras
N. Garganas and M. Xafa with John Spraos