Society and economics: Revisiting the causes behind the Greece crisis

With Greece again back in the news, it is interesting to understand some non-obvious factors that were behind the crisis.

The Greece crisis, as wide reported, is attributed to the growing public deficit and thereby debt in the country. This prompted downgrading of the credit ratings of Greece by leading agencies, pushing up the yield on Greek bonds.

At the root of the spiraling deficits were fundamental weaknesses within the economy. While factors such as unrestrained spending and cheap lending have been widely discussed, there are some unusual theories to the causes of the Greece crisis that are interesting to explore.

Philomila Tsoukala, an associate professor at Georgetown University, suggests that the Greece crisis has it’s origins in the fact that private sector is comprised mostly of family-owned businesses with over 75% of businesses being family owned. In such businesses, there are no minimum wages and wives often work for husbands for free.

This structure has two major implications. For one, it has kept down wages. In fact in Greece, real wages have grown at a much slower rate than the growth in productivity. This has led to reduced consumption, investments and thereby reduced GDP growth. The second major implication is that this family structure has hindered competition and innovation, pushing down wages.

In another interesting viewpoint, Dimitris Georgakopoulos, head for taxation Ministry of Finance, traces the Greece crisis back to the 400-year-long Ottoman rule over Greece, where people evaded taxes in resistance. Indeed, tax evasion and corruption lie at the heart of the Greek crisis, with cheating on taxes being a common norm. Independent sources indicate that Greece loses between € 50 - €70 billion in revenue due to tax evasion each year.

A third explanation of the crisis, as argued by prominent writer and journalist Robert D. Kaplan, is that the crisis was dictated by fate, and stems from Greece’s geographical position. He highlights that Europe’s main troubled economies-Italy, Spain, Portugal and of course, Greece, are all located in the south.

These Mediterranean countries were characterized large landholdings, which lend to an inflexible social order and prominence of statism and autocracy. This is reflected in fact that Greek politics for the last half-century have been dominated by the Karamanlises and the Papandreous families. Kaplan argues that culture of autocracy dictated and even today has a bearing on the economic success of Greece, leaving is lagging behind other countries that were more “humanized”.

These points of view are interesting in order to understands how societal structure and norms have an influence on economic success and how economic growth is linked closely to community behaviour and structure created over centuries.

While we may now have some idea of how the Greek crisis was truly caused, recent incidents indicate that the crisis is far from being resolved. In our next post, we shall look at bailout packages being proposed for Greece and what impact are they going to bring about…watch out for that!