In fact, during the past 12 months, Greece’s modern economic tragedy has exacerbated. Unemployment has soared above 30 per cent and disposable income has plummeted by more than 25 per cent.
After last year’s near death experience, the Greek economy is unable to regain its footing. The financial meltdown that provoked an international economic soap opera last summer shows no signs of an economic spring.
One year ago, the Greek economic crisis led to the closing of the Greek banks, a mounting public debt, Greece’s incapacity to meet its sovereign debt and the apocalypse of a Grexit. Today, the economic landscape has worsened rather than improved. After seven years of recession that have hit every sector of the economy, created social tensions and political uncertainty, the Greek economy offers no hope of redemption any time soon.
Tax revenues have missed their targets and deposit outflows, according to data released by the country’s central bank, have continued. Capital controls imposed to prevent the country’s financial collapse in July 2015, where bank withdrawals were limited to €60 a day or €420 a week, have not been lifted. Greece’s debt burden is expected to exceed 187 per cent of GDP this year, a load widely viewed as unsustainable if the country is to recover.
The Greek economy is hampered by low household income levels, high unemployment, market uncertainty and additional pension reductions and reforms. The prospect of banks repossessing homes, as a consequence of international creditors insisting on enforcing new measures that will reduce mortgage debtors’ protections, is likely to fuel further social discontent. In short, Greece is trapped in a vicious cycle of austerity, debt, high unemployment and negative economic growth.
As a result of deep government spending cuts, Greek hospitals and schools are operating with threadbare budgets and skeletal staff. When asked about the personal impact of the perpetual economic crisis, the average Greek responds: “We are getting used to living with daily and chronic economic pain.”
Greece’s historical economic lifeline, its summer tourism industry, is failing as well. Despite the terrorist attacks in France and Belgium this year and the geopolitical instability in neighbouring Turkey and Egypt, tourism has not shifted to Greece this summer. Greek hotel, restaurant and tour operators are complaining that fewer tourists, with threadbare travel budgets, increased operation expenses and high local taxes are killing their business.
More than half a million young and educated Greeks have left their home country in search of job opportunities and more attractive careers overseas. This modern brain drain represents a tremendous loss of human capital and dynamic entrepreneurship for the Greek economy. It will surely inflict additional economic hardship for years to come.
As if all of this was not enough, Greece’s geographical juxtaposition has made it an easy entry point for millions of Syrian refugees fleeing their war-torn country and seeking refuge in the more affluent countries of the European Union. This contemporary refugee movement has added extra financial strain on the overstretched Greek treasury and has fomented further social tension among the local population.
The continuously deteriorating Greek economic crisis provides us with a double take-home message. First, the new global economy of the 21st century is foundationally and fundamentally different from anything that preceded it. As such, economic policies that were effective in the old economy are failing to deliver the desired objectives. Insisting on giving the patient mega doses of these same-old economic policies is not the prescription for an immediate and full economic recovery.
Second, fiscal constraint and placing public budgets on a forced weight watchers diet is only half of a sound economic plan. The other half requires a road map to grow the economy and foster an environment that leads to job creation. In addition to fiscal restraint and public sector reforms, there needs to be an economic development plan that will attract new investment, grow the economy and create jobs.
Dr. Constantine Passaris is a professor of economics at the University of New Brunswick and an Onassis Foundation Fellow (Greece). He was a visiting professor at the Swedish Institute in Athens in July.