I found an interesting chart from the World Bank this week. It shows Greek GDP since 1960.
And here's another chart showing the growth rate of Greek GDP. Note that it is currently shrinking (negative growth).
We hear a lot about the collapse of Greek GDP, and the second chart shows the dimensions of this. Greece is now in its fifth year of recession and things are only getting worse. Though it's interesting to note that Greece had a much sharper drop in 1973-5, probably due to the oil embargo, and also in the early 60s. But those were from a much lower GDP base than the current contraction. And therein lies the problem.
Greece was for a long time a poor economy. Its major industries were agriculture, shipping and tourism. But the first chart shows that after it joined the Euro in 2001, its GDP shot up. What caused this?
Well, it certainly wasn't improvement in exports. Here's another chart showing Greece's export performance:
Note that Greece was ALREADY running a trade deficit when it joined the Euro - in fact its current account deficit had been growing steadily since 1960. Externally it was already uncompetitive when it joined the Euro. And for a while after it joined, the trend continued - imports exceeding exports year-on-year. But it appears that from 2005-2008, Greece's trade balance fell off a cliff. It's not clear from the chart whether this is caused by a massive increase in imports or by export collapse due to the growing uncompetitiveness of the Greek economy versus its main trading partners. I suspect it was elements of both.
Here's Greece's capital account for the same period. Note the extraordinary increase in capital formation since 2001 and particularly since 2005. This capital increase mirrors the increase in the trade deficit. It seems highly unlikely that this capital was internally generated, so what we are in effect looking at here is external funding of Greece's trade deficit.
Capital growth has now stopped and since 2008 capital has been leaving the country. The trade balance is much better, but this is undoubtedly due to reduction in imports rather than export growth - as the second chart shows, Greece is deeply in recession. GDP is falling steadily. And this is the problem.
These charts suggest that the growth in GDP seen since Greece joined the Euro, and particularly since 2005, was caused by a consumption bubble funded by external capital inflows. In 2008 those capital flows abruptly reversed and the consumption bubble collapsed, leaving the country as a whole highly indebted and without sufficient domestic production to support its debt burden or maintain its Euro-generated standard of living.
Greece was already declining as an economy when it joined the Euro. All Euro membership gave it was a huge party at foreigners' expense. Its economy is no more productive than it was in 2001. But its population have come to expect a much higher standard of living, and many of their jobs are provided by a Government whose increased spending was also financed by external borrowing. So as Greece's economy crashes, its population howls and blames the external people who financed their unsustainable boom. Well, I can blame them too - there is no doubt that the main beneficiaries from Greece's Euro membership have been larger Eurozone economies, particularly Germany, whose banks provided that funding as trade finance for exports and whose economic growth has been partly financed by Greece's imports boom. But blame doesn't help. The fact is that Greece's economy became dependent on external capital flows. Now those have stopped, and there is no political will anywhere in the Eurozone for them to be restored in the form of fiscal transfers such as exist in other currency unions like Germany and the UK. Greece's economy is in the process of collapsing back to where it was when it joined the Euro, and possibly even lower since it has unquestionably lost competitiveness with regard to its main trading partners. And the first World Bank chart shows that the process has hardly begun. Greece's GDP is now about where it was in 2006. It still has an AWFULLY long way to fall.
The story that these World Bank charts tell is a terrible one. Euro membership has been an unmitigated disaster for Greece. It is now on the road to hell. It cannot stop, it cannot go back, and the only exit is a cliff edge. Leaving the Euro would result in sudden catastrophic currency devaluation, production collapse, probably hyperinflation as the Government was forced to monetize debt, terrible poverty, violent disorder (we are already seeing this) and lawlessness. But remaining in the Euro will result in exactly the same, just more slowly. The Greeks think they are in hell now, but this is paradise compared with what is to come. It's just a question of how quickly they get there.