Fearmongering and deficits

There is little doubt that if Greece – with a current account deficit amounting to 14 percent of gross domestic product – were not in the eurozone, it would have to file bankruptcy or, at best, would have to devalue the drachma significantly every two years. Because with such a deficit no foreign investor would trust the Greek economy and would therefore never buy stocks or government bonds, nor bring in money to invest in real estate. The decision in 2000 by the Costas Simitis government to adopt the euro and give the country such a strong currency was the country’s salvation. The same government, however, made a crucial mistake in not taking advantage of the challenge presented to Greece with its entry into the hard core of Europe to make bold changes to the economy, public administration, education and society more generally so that the country could become more productive and competitive. Greece adopted the euro, a strong currency that raised the cost of living, and rested on its laurels by wasting EU funds on infrastructure projects instead of investing them in knowledge and production. On the other hand, low interest rates in 2000 instigated a lending boom which increased consumption and imports. We did not make the most of the monetary union to boost production and services. As a result, the current account deficit has soared from 12.7 billion euros in 2005 to 28 billion last year. The European Commission is right in asking us to boost our competitiveness. However, reports in the international media purporting that Greece is living off Europe’s richest are unacceptable. The 2007 deficit was covered by foreigners buying local government bonds and stocks.