Friday, February 24, 2012


The complete graph you can can find on the site of Eurostat.The General Government Gross debt of Greece is sky high. In 2010 it amounts already more than 140% of the Gross Domestic Product (GPD), followed by Italy with about 120%, Belgium, Ireland and Portugal have more than 90% . Even Germany is above 80%, more or less the avarage of the Eurozone. The question is, as always in economics, whether one has faith in the future of the country. Greece is not trusted anymore that it can pay its debt. Portugal is on the brink while Ireland has won back international confidence.
Now that Greece will receive another 130 billion Euros, after very tough negotiations, it is time to question what happened with the first 110 billion Euros that Greece received two years ago?

Everybody acknowledges, including the Greek authorities, that after the first 110 billion nothing has happened. The Greek minister of Interior Affairs, Tasos Giannitsis, himself said that the Greek Government has been waiting for two years for the money without doing anything. The Greek Minister for Economic development said it even more bluntly. Last month he acknowledged that some of the Ministers did not even bother to read the agreement with the Euro-countries and the IMF. An IMF spokesman observed that they never before had seen a country that did not comply with any of the requirements that were agreed, as Greece did.

What went wrong?

1.    The Government indeed increased taxes but Greeks started to buy everything on the black-market. The Greek tax-control-system was not able to counter this problem.
2.    It was agreed that thousands of public workers should be dismissed, but politicians were reluctant to do so while they have, for many years, been offering their voters these jobs. Besides that, the Greek constitution did, and does, not allow to dismiss public workers just like that. The only way to cut public jobs is to abolish the function with the result that the worker will be placed on a list of reserves which in practice means he will then get a kind of an early State-pension.
3.    The public administration is a disaster. There is a shortage of well-trained senior officials.
4.    The administration is still on paper which makes it easy for officials to manipulate cases and ask money from those citizens that need a permit, like, for example, when starting a shop. Corruption is a way of doing business in public services.
5.    It was agreed that state-enterprises would be privatized, but the trade unions succeeded to block this. The only action taken to this regards was the attraction of foreign investment to partake in some sectors. This was, however, not the sort of privatization that was agreed upon.

Nobody knows if this bail-out of 130 billion will be enough to guarantee that Greece will not go bankrupt. The Greek economy is severely damaged which means that the income of the State is still shrinking. The will most probably result in more money to be needed in the future. When this is not granted Greece will have to leave the Euro zone.

To make the economy work again it is therefore necessary to invest in new economic activities. Europe and the IMF should do everything possible to revitalize the Greek economy and to create jobs.


  1. Griekenland is al 3 jaar failliet, maar door de sterk gegroeide derivatenmarkt weet niemand wat de consequenties zijn van een formeel bankroet. In dit artikel in de NYT redelijk samengevat: "Derivatives Cloud the Possible Fallout From a Greek Default" .. ..

    De deregulering van de financiële sector maakt een Argentinië-route van Griekenland voor ons allemaal problematisch.

  2. @arjen-fernhout

    Dank voor de verwijzing.