Greek economy : 1950 - 2014 : the 30 year road leading to the Greek financial crisis and the IMF-EU-ECB bail-out : investments and exports are the way out

Abstract

Up until the 1970s, Greece was a paradigm of a vigorous economy with high growth rates, positive budgets and low borrowing. Even when the international economy experienced a recession in the 1970s on account of the oil crisis, the Greek economy continued to grow. In the 1980s an imprudent fiscal policy mix (involving higher pensions, higher salaries to civil servants, early retirements, overcrowding the civil service and loss-making state-owned enterprises trough new hires, etc.) produced large deficits which, in turn, lead to increased borrowing as the economy’s growth rate slowed down. The rest of the story is pretty much known. As the country’s creditworthiness declined it became harder to obtain the funds needed and Greece turned to its lenders of last resort (IMF, EU and ECD), referred to as the troika. Harsh steps were taken, which involved wage and pension cuts, which, in turn, adversely affected consumption, making the recession inevitable. It is a problem with a straightforward solution: Increase exports and investments. In this paper we demonstrate the beneficial impact of these two variables, exports and investments, on the economy, and present alternative scenarios regarding the evolution of these factors and their impact on the GDP.