國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
Source: Trading Economics, Greece, Markets, Government Bond 10Y Figure 2-5. Greece 10-Year Government Bond Yield (2008-2012)
This is not to refer that the Greeks had no wrongdoings in themselves. Out of all 19 member states then in the Eurozone, only five were caught in severe financial crises, and only Greece still remains seriously mired in its economic turmoil. It is true that there have been hereditary differences in economic strength between the countries, yet we can still conclude a number of domestic causes for the Greek sovereign debt crisis as well.
Endogenous factors. There are six domestic factors that caused the Greek sovereign
debt crisis.
The extravagant spending behavior. Intuitively, if expenditure outnumbers revenue, one
gets in debt. This is essentially what the Greek government had been doing prior to the eruption of its sovereign debt crisis.
Budget deficit occurs when revenue could not support expenditures. The Greek
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
government was running a constant budget deficit for an extended period of time. Even a decade before the crisis broke out, there had not been budget surplus. Moreover, since 2005, things took a turn for the worse. As Figure 2-5 shows, Greece’s budget deficit grew to almost 16% in 2009.
Source: Trading Economics, Greece, Government, Government Budget Figure 2-6. Greece Government Budget Deficit (1996-2015)
Matsaganis (2012), and Nelson, Belkin, and Mix (2011) all attribute the reckless
spending behavior of the Greek government to be one major contributing factor for the Greek sovereign debt crisis. By and large, the most criticized fact about Greece’s budget plans is that a great chunk of it went to the public sectors, civil servants, and a social welfare system.
Salary for civil servants was estimated to be around three times higher than that of private company employees. Even when Greece received multiple rounds of financial rescue, a great part of the bailout funds still went to pensions and social welfare (Jin, 2012). Scholars
estimate that in 2009, 50% of Greece’s GDP went to government expenditures, of which 75%
went to public sector wages and social benefits (Nelson, 2011). The estimation is
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
predominantly accurate. In light of OECD Stat’s database (OECD.Stat), between 2003 and 2010, the proportion of annual central government budget being allocated to health and social policy, which involved health, welfare, pensions, employment, and social policies, kept going up on a yearly basis. As Table 2-1 suggests, not only did health and social policy take up great percentage of the overall annual budget, the number of which was also on the up trend in those years.
Table 2-1. Greece’s Social Welfare to Annual Budget Ratio (2003-2011)
Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 Spending 19.0% 18.9% 20.4% 20.4% 20.6% 21.4% 23.7% 23.8% 25.9%
Source: OECD.Stat, Social Expenditure – Aggregate Data
In addition, using statistics from Elstat’s 2010 press report, Matsaganis (2011) suggests that pensions constituted the “backbone” of Greece’s social protection network, providing the average households 24.1% of their disposable income. The problem raised was that the huge amount of money spent was not spawning palpable feedbacks to the economy.
At the same time, the force formed by the sizable population of civil servants made reforms of the system an arduous task for the government, constituting the reason the budget instilled had not been winding down. Using the data from Greece’s Ministry of Finance official website, the lump sum of the budget given to the wage of the public sector grew from 31 billion euros in 2003 to the peak of around 43 billion euros in 2007. Even after the crisis
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
broke out, in 2009 and 2010 the numbers were still at a surprisingly high level of 28 billion and 30 billion euros. And as can be seen in Table 2-1, the percentage ballooned since 2008 mainly because of the withering GDP in those years due to the debt crisis. Also, one intriguing fact revealed in a Wall Street Journal Article (Moffett and Granitsas, 2010) says that the EC estimated “the administrative burden of Greece's bureaucracy—the value of work devoted to dealing with government-imposed administration—is equivalent to 7% of GDP, twice the EU average.”
One major cause for Greece to have such a massive army of civil servants relates to the state control of the economy (Macias, 2011). Since the 1970s, poor economic policies have been bewildering the Greek economy. One of the main factors, which is also what has been exacerbating the prolonged budget deficit, is the high degree of government control over numerous sectors of the economy through state-owned banks and industries.
Astonishingly, Monastiriotis (2011) uses salaried income data from the Greek Labor Force Survey and data on salaried and total household income from the Greek Household Budget Survey (HBS) and finds out that before the crisis, “the public sector accounted for close to 20% of total disposable household incomes in the country, while another 20% was accounted for by pensions.” That means around 40% of household expenditure was paid for by the government.
With the good and bad nature of state-controlled economy, there has been extensive
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
debates about how deeply involved the national government should be in regulating the national economy and which industrial sectors should be reserved exclusively for state ownership (Megginson and Netter, 2001). It is a matter that concerns the historical argument between laissez-faire and non-market economy. Although it is believed that some industries should be at the helm of the government, the problem with Greece’s economy is that for too long its government has been in charge of too many economic sectors. In 1965, Greece’s state control of the economy, mainly through state own enterprises (SOEs) or credit control via banks, amounted to more than 90% of the overall economy. After rounds of reform, the first of which started in 1990, the state still controlled approximately 75% of all business assets in the country and tightly regulated other sectors of the economy. Even though the number fell to about 50% in 2008, it was still a big proportion (Mouzelis, 1979).