At the time of writing, the elections in Greece have not taken place yet: however, we thought it could be useful to review the story so far. We’ll do it following one of the many things the Greeks have invented: the tragedy.
I. Prologos: of public vices and private virtues
The usual narrative of the Greece current economic situation stresses that the Greek government went on a spending spree in the years after the accession to the euro. This created an unmanageable amount of public debt. So the crisis that Greece is living is mostly the consequence of irresponsible politicians which mismanaged public finance and lied to the EU Institutions about the size of the deficits. Judging Greece politicians is a prerogative of the Greek electorate; here we won’t indulge further on this. We will however point out a non-trivial detail that often fails to be mentioned: the exponential increase in Greece’s indebtedness – before the crisis – took place in the private, not the public sector. In the estimation of the ECB private debt increased by 217% between 1999 and 2007 while over the same period public debt over GDP increased by only 13%. The explosion of public debt over GDP happenedafter the Lehman Brothers shock as a consequence of deteriorating macroeconomic conditions.