Ten hot questions on the Greek economic crisis

and the new Greek government along with

honest answers
Dr Ioannis P. Antoniades, Thessaloniki, Greece

1. Did Greece have the largest debt in the EU in the beginning of the crisis?
The Greek public sector, indeed yes. The private sector, however, no. Specifically, in 2009 the
Greek public sector debt amounted to roughly 125% of GDP, compared to 117% in Italy, 85% in
Portugal, 80% in G. Britain (see Table 1.) On the other hand, the Greek private debt (what Homes
and Businesses owed to Banks) amounted only to 123% of GDP, while in Italy the respective
number was 198%, in Portugal 238% and in G. Britain 386%! As a result, the total debt of the
Greek economy was much lower than in several other country members of the EU (Greece was
in the 9th place in terms of its total debt within the Eurozone) with a total debt of 248% of the
GDP compared to 315% in Italy, 324% in Portugal and 466% in G. Britain. On the average, a
Greek citizen owed a total of $76.8K (debt per capita). In comparison, an average German
owed $129.1K, an Italian $123.2K, a Portuguese $76.9K and a Brit $198.7K.
Table 1: Public, private and total debt as a percentage of GDP for six EU countries.
Country
Greece
Germany
Italy
France
Portugal
G. Britain
(*) % GDP

Total debt *
248
285
315
323
323
466

Public debt *
124.9
76.7
116.7
82.5
84.6
80.0

Private debt *
123.1
208.3
198.3
240.5
238.4
386.0

2. Was the Greek state budget deficit in 2009 the largest in the Euro zone?
It depends on whether you believe the Greek statistics Agency (ELSTAT) under its new
Administration back in 2010 or not. In 2010, ELSTAT in cooperation with EUROSTAT revised the
deficit of the fiscal year 2009 from around 6% to 13,4% of GDP at first and a few weeks later
(curiously after Ireland announced its own deficit at 14%) revised it once more up to 15,7%. It
makes one wonder whether this blow-up was performed purposefully so that Greece is justified
in the eyes of domestic and world public opinion to be the first eurozone country to enter an IMF

support programme. The Greek opposition party (New Democracy) leader and latter pri-minister,
Antonis Samaras, certainly believed so when he argued several times in Greek parliament that
the deficit of 2009 was much lower than the number announced -definitely below 10%- but it
was artificially blown up by transferring state income budgeted in 2009 to the fiscal year 2010.
Indirect evidence to support this claim comes from the fact that the actual deficit in 2010 was
announced at about 10%, which corresponds to the enormous amount of 11 bln in yearly
public spending cuts, within a year in which every Greek knows that no serious austerity
measures were actually taken. It is interesting to mention, in comparison, that G. Britain, not in
the eurozone of course, but still in the markets, announced a state budget deficit of 17% back in
2011.

3. What about Greeces current account deficit?

The current account is the difference between total exports and total imports in goods and
services combined. Greeces current account deficit was steadily the highest in the EU since 2006
reaching -11.2% of GDP in 2009 compared to -10.9% in Portugal, -2.3% in Ireland and -4.5% in
Spain. This means that, whereas the private sector debt in Greece was much lower than in all
these countries, the rate of increase of the debt was higher. Thus, Greek private debt was
increasing fast and this fact put Greece in a worse position than justified by the value of its
private debt in 2009. With the exception of Portugal (which had both a huge private debt as well
as a large rate of increase of that debt), Greece was a country that more urgently than any other
country of the eurozone, had to revise downwards its citizens spending habits.

4. At the bottom line, was Greek economy in the beginning of 2010 really all
that much worse than the economies of other EU countries?
On the overall, definitely no. This is the conclusion one objective reader of economic indicators
would reach by looking at the large picture. Greeces largest problem was its overspending
public sector, no doubt about it. However, it performed much better than many others
elsewhere, including the condition of its private banks, which were in a far less extent influenced
by toxic bonds coming from overseas than Irish, British, Dutch, Spanish even German banks were
in 2009. Of course, Greece was in a bad economic shape and definitely fiscal measures were
urgently needed. However, in no way can the global public media frenzy against Greece and
against the Greek people that took place in the beginning of 2010 be justified based on the its
actual economic situation. Markets also over-reacted by abruptly turning off the oxygen
supply to Greece leading it to the IMF. Greece was to a very large extent treated unjustly and
was fiercely abused by public media.

5. Did the ECB, the EC and IMF sponsored support programme applied to
Greece succeed its primary economic goals?
No, it devastatingly failed. The primary economic goals were: the Greek State to be able to meet
its obligations to its past and new creditors while at the same time to make the public debt viable

and Greek economy more trustworthy so that Greece may return to the markets. Today, five
years later, the public debt-to-GDP ratio has risen from 124% in 2009 to an enormous 175% in
2014. Greece is far from being able to go out in the markets since the spreads are still pretty
high. The Greek economy, with the exception of the touristic sector, is in a much worse state as
far as productivity is concerned (primary and secondary sectors). Despite the so called internal
depreciation, revenue from exports has only marginally risen. On the other hand, as the IMF in a
very sincere report published in mid 13 admitted, the toxic effects of the stabilization
programme to Greek GDP and unemployment rates has largely been underestimated.
Depression has reached enormous levels: GDP decreased by 25% in only four years.
Unemployment rates have reached 29% in 2013 (currently 26%), 60% in people under 25, 71%
of which are unemployed for more than a year, 42% for more than two years and 20% for more
than four years! These numbers are as horrific as the after the end of World War II and the
subsequent Greek civil war in 1949. Hundreds of thousands or SMEs have closed down. As a
result of the very abrupt and severe austerity measures, red loans sharply increased, domestic
bank savings decreased, banks almost collapsed requiring recapitalisation, cash liquidity shortage
and bank inability to issue business loans has strangled domestic investment. At a humanitarian
level, suicide rates have risen 35% in the last three years of the crisis, 36% of the population lives
under poverty line, hundreds of thousands of families have been literally destroyed, hundreds of
thousands of others cannot pay their loans and more than 1.5 million are unable to pay their
taxes.

6. Why did the financial support programme for Greece fail so miserably
whereas the respective programmes for Portugal or Ireland seem to have
gone so much better?
Roughly speaking, this is due to the fact that austerity measures and tax increases that the Troika forced
the Greek state to implement were much more abrupt and much more severe than in the other two
countries. Abrupt and severe are the two important keywords here. Back in 2009, Greece had a much
higher public debt problem than Portugal and Ireland and a high enough state budget deficit to begin
with. (Irelands public deficit was pretty high too, maybe higher, but not as a result of public spending but
mostly because of the deficit of the Irish banks). Therefore, the amount of budget cuts (salary and
pension reductions etc) that the Troika demanded from the Greek state to carry out in order to achieve
rapid nullification of deficit and creation of a surreal surplus was more massive than in the other two
countries in the same very short period of time. As a consequence, much stricter austerity measures
taken over such a short time period, inevitably triggered a domino effect within greek economy which
resulted to large depression, which in turn brought lower state revenue and thus came the need to
severely increase taxes. Higher tax rates and salary/pension cuts caused more depression on the one
hand, due to the abrupt fall of consumption, but also the closing down of businesses, the increase of
unemployment, the increase of red loans and withdrawal of bank savings, the inability to pay taxes, which
in turn resulted in less income for the state, thus, the need for more taxes and so on. This is the vicious
circle of austerity, which hit Greece much more than the other two countries because the pole for
Greece by the Troika was set too high. On the other hand, higher recession, meaning lower GDP, made

the public debt-to-GDP ratio increase sharply, even though the total debt in euro rose only by a small
amount since 2010.
The current insanely high ratio of Greek public debt to GDP of 175% is almost exclusively due to
recession, caused by the denominator of the fraction dropping, rather than the numerator rising. As a
result of the uncertainty caused by the Greek debt becoming less viable , Greece cannot yet go out in the
markets to borrow money at reasonably low interest rates and thus must still rely on EU help in order not
to go bankrupt. Thus, although Greece has managed -at a huge humanitarian cost and a huge cost to its
real economy- not only to nullify its double deficit (public and private) but to create significant primary
surpluses, its root economic problems not only remain, but have deteriorated. It is also clear that this is
not at all the Greeks fault, because they have followed the programme to the letter (unfortunately). This
is 100% due to the Troikas stringent requirements (lead by Germanys reluctance to look at the big
picture thus imposing a narrow-minded punishment programme instead of a reasonable one) to make
the most severe public primary expenditure reductions in global fiscal history in the shortest time ever
in order to satisfy Germanys non-sensical demands for surreal surpluses amidst a prolonged period of
great depression: In five years, Greece has reduced its public budget primary expenditure by an
unprecedented 34% (21 bln ) while the economy was falling by a record 25%! The equivalent of that
reduction for Germany and G. Britain would be approximately 450 bln and 476 bln in respect!

7. The Greek government has received some 240 billion in low-interest

public loans from EU countries over the past five years plus it benefited
from an extra 100 billion debt haircut back in 2012 (PSI) and another 40
billion haircut back in 2013. Why the heck then did its debt rise up to 175%
of its GDP and the Greek government is now asking for another haircut?
First of all, the statement that Greece actually received and benefited from a massive haircut of its public
dept in 2012 and 2013 is one of the biggest lies told in the history of the Greek crisis and surprisingly
some global media are still repeating it. The truth is completely different. In both cases, Greece was
actually forced, by the IMF in particular, to apply a haircut to volunteer holders of Greek state bonds in
order to reduce its public debt. Guess who volunteered: It was the Greek private banks, Cypriot banks,
Greek public insurance organisations, other public legal entities controlled by the government such as
public hospitals and universities and finally thousands of individual micro-investors both Greek and nonGreek. The ECB and major European or global financial institutions did not volunteer and thus bonds in
their possession were paid at their nominal value at expiration. In conclusion, the Greeks were forced by
the IMF to give a haircut almost exclusively to themselves! Because the largest burden of fiscal loss was
put on the shoulders of the already greatly troubled Greek banks, the Greek state had to borrow money
from the EU (130 bln) in order to support them in the so-called recapitalisation that took place in the
period 2012-2013. These loans were added to Greek State public debt. Thus, Greece erased 100 bln in
order to re-borrow 130 bln for its banks, money that would otherwise not be needed, had the haircut
not taken place and had the programme not been so severe that the bank liquidity would be in so much
trouble. The net result was absolutely nil! Not only Greek debt was not actually reduced by the
haircuts, but the great losses suffered by Greek public insurance agencies were put on the shoulders of
Greek workers who now receive much less benefits for larger insurances fees.

Secondly, out of the 240 bln in loans only about 11% went to cover primary needs of the Greek State. The
rest was used to cover previous creditors as well as support recapitalisation of Greek Banks. In essence,
Greece exchanged debt in the form of bonds with public two-party loans with each one of the other 17
eurozone states. The total amount of Greek public debt did not increase (neither did it decrease due to
some supposed haircut), however it greatly increased as a percentage of its GDP due to the very large
reduction of the GDP caused by the austerity programme (see the last paragraph in question no 6).
It is very important for the people of European countries that lent money to Greece to understand that
Greece would have most probably needed less bail-out money from Europe and the IMF, had only the
programme been milder and more reasonable. By this I mean that instead of forcing upon Greece to
perform a huge decrease in public expenditure in only 4 years time, they could have required a smoother
transition to balanced (but not excessively positive) state budgets say in a 8 year time period. This would
have verifiably cost around 30 more bln in total support for the primary needs of the Greek state, but it
would have far lighter ill-effects for the Greek economy, and God forbid!- less pain for the Greek people.
In effect, this would mean less unemployment and less recession, thus a much lower debt-to-GDP ratio,
resulting in a viable debt.

Most importantly, a milder financial reform programme would have lead Greece far sooner
back to the markets and much of the 240 bln of EU bail-out loans would not have been
needed. Moreover, we would not be discussing today about the necessity for a substantial
readjustment of a debt. Greece would be able to repay it. In conclusion:
In the case of Greece, thanks to a non-sensical and detrimental economic programme imposed
mainly by Germany, European citizens spent more money in loans in order to destroy Greece
than they would have had to spend in order to actually save Greece.

8. Does the new Greek government want to stop reforms?

No. It wants to deepen reforms. Up until now, there have not been any substantial reforms in
Greece in order to make it more attractive to investment both foreign and domestic. Substantial
reforms include simpler legislation, a more effective public sector and -most importantly- impose
a simpler, more stable tax system that would make investors feel more secure. Instead of
promoting all these tough reforms, the former government concentrated in laying off public
servants whose number has already been significantly reduced anyway by the dogma 1 person
hired for every 10 that go out on pension applied in the past five years. Reforms focused on
superficial things such as opening closed professions e.g. pharmacy stores. Thessaloniki, the
second largest city in Greece, has more pharmacy stores than the whole country of Austria. Taxi
cabs in Athens and young lawyers in Thessaloniki are more than in Paris. Greek closed
professions are already overcrowded, absolutely no benefit can come out for the economy, if
they open or not.

9. Does the new Greek government oppose privatisations?

No, not at all, in principle. The new government defines privatisations as cooperation of the
public sector with the private sector in order to exploit state property for the creation of new
wealth, for bringing growth and creating new job positions. Up until now, the former Greek
governments Troika induced idea of privatisation was to sell -for peanuts- already highly
profitable public enterprises to Greek businessmen having the habit to live on state funds. For
example, OPAP, the state lottery monopoly company steadily making a net profit of more than 1
bln euros a year before crisis and 400 million even during crisis was sold off for a mere 1,2 bln
euros to a businessman who actually received a huge loan from a Greek bank to finance the
purchase. Other profitable companies sold or in the process of being sold included the greek
public electric company, national highway tolls, water companies etc. All these sell-outs did not
produce any new investments, any new jobs, they just gave away most certain state profits
creating new holes in state budgets!
The new government will stop these senseless sell-outs. However, privatisations that produce
new wealth such as the cooperation with the Chinese company COSCO in the harbour of
Peraeus are happily welcome. The new government is greatly interested in attracting and
assisting such profitable investments from abroad and use up government property wisely for
the benefit of the Greek economy.

10. At the bottom line, what does the new coalition government of Greece
lead by SYRIZA want from Greece s European partners and creditors?
Unlike the previous government, it wants the obvious. The situation now in Greece is as
follows. The humanitarian crisis has peaked and the real economy has stalled. There are 1,35
million (26%) unemployed, most of them for more than a year. All this destruction was
completely unnecessary. The need for more bail-out money five years after the beginning of the
crisis would also be unnecessary, had the Germany imposed programme not followed an
insanely wrong prescription and had the former Greek governments not been so pathetically
concessive. Greece still cannot borrow money from the markets in order to refinance its debt. It
therefore still needs support from the euro zone in order to cover its creditors. Since 2013 the
Greek State does not need any more money to cover its own primary needs, because it has
already achieved a primary surplus. The amount of debt as a percentage of GDP is huge, mainly
due to the enormous depression. Everybody knows that Greece cannot reduce this debt unless it
is allowed to achieve very high growth rates (> 3,5%) for many years in a row and sustain very
high positive state budgets. Germany and IMF are not satisfied with current budget surplus rates
of (2% of GNP) but require surreal surpluses in the order of 4.5%! Moreover, they want to
impose new measures like, for instance increase VAT in tourism, the only competitive sector that
remained in Greece. In order for Greece to restart its economy and society, it needs not only to
ease up on austerity, but to a large extent self-finance growth of the real economy. However, it is
mathematically impossible to ease up on austerity, and at the same time service the enormous
debt as well as self-finance investments.

The only solution for the Greek dead end is that Greece is allowed to breathe some air.
SYRIZA-ANEL coalition maintains a firm position that state budgets must be balanced but
surpluses must be allowed to drop so that some money can be given to remedy the humanitarian
crisis on the one hand, and finance investment on the other. In order to achieve this, the yearly
cost of servicing Greek debt must drop very significantly, in order for Greece to stop depending
on EU for paying its debts and at the same time be allowed to raise its economy and society from
its ashes. The exact technical details of how Greek debt obligations will be ameliorated is a
matter of negotiation and the new government is willing to reach a mutually acceptable
agreement in this respect.
A couple more words for Germany: First, Greece was one of the countries that has signed off
50% of German debt back in 1953 and agreed that Germany would pay the rest of it according to
its growth rate. Had the world not done that huge favour to a country that was guilty of starting
the greatest war in History, Germany would have never been able to grow. Secondly, Germany
still owes to Greece the mandatory loan received by Nazis during the last world war which
amounts to more than 70 bln euros in present values, not to mention the much higher amounts
for war reparations, which Greece never received. Altogether, the net value of what Germany
owes to Greece exceeds many-fold the value of the loans issued by Germany to Greece during
the present crisis. Let Germany not forget that. Greece wont.