Under the mentorship of Nobel Laureate Amartya Sen, economist Andreas Papandreou received his doctorate from Oxford University in 1991 after a three-year fellowship at Harvard University. With more than 23 years of teaching experience at various universities, Papandreou is currently a professor at the National University of Athens. His research, including previously published work, concentrates on matters related to environmental economics, institutional economics and microeconomics. Papandreou provides an in-depth analysis of the factors that led to Greece’s economic decline in 2009 and the changes that took place after the crisis.
It has been 10 years since the bailout crisis crippled the Greek economy, making it the poorest and most indebted country in Europe. Where does the country stand right now?
We are reaching the period where we might think of getting out of the loan agreement and starting to be able to raise money on our own as a state. But in many respects, it is described as one of the worst depressions or recessions in peacetime in an advanced economy since the Great Depression in the U.S.
We are talking about extremely high unemployment and a continuous state of companies going bankrupt. Banks are in a state where they do not have liquidity and require support continuously. Poverty is at a peak and as it happens, we also have the migration crisis that has intensified the sense of difficulties both for the inner cities and also on the islands where some of the migration flows are taking place. You cannot have it as bad as this.
How did the bailout crisis affect the rest of the EU and the Eurozone?
There was always a major concern that the bailout crisis and the potential failure of a country, or potential exit of a country from the EU, could lead to an unraveling of the EU. That was a major fear. In the initial stages of the Greek crisis, major European banks could actually be affected dramatically if Greece defaulted on its loan.
Once some time went by and the loan became part of the EU public sector and it was no longer a threat to the major banks of the EU, then the main threat was in some sense a political threat. If a country left the euro, that could create a domino process where other countries might consider abandoning the euro and ultimately that could lead to the collapse of the euro. That danger has seemed to have receded but on the other hand, the bailout crisis has raised in a very powerful sense the weaknesses of the monetary union and the need for a banking union.
What are the chances that Greece would become the next member state, and follow on the heels of the U.K., to abandon the EU in what some refer to as “Grexit?”
The Greek people, despite all that has gone on overall, have a demand and a very high degree to which they believe that Greece should be part of the EU. Despite all their animosity towards Germany for taking a tough stand on the loan, they basically trust European institutions more than they trust Greek institutions. Their concern is that if we leave the euro, this could be potentially the first phase of leaving the EU and that would deny us the protection of the institutions that the EU has. We could potentially become more captured by oligarchs and even in terms of geopolitical games of other interests.
How have small businesses been directly impacted by the steps taken by the government following the crisis and the evolving consumption patterns?
Greece has had quite a big degree of tax evasion. That was also part of the problem of the Greek state traditionally, not having a broad tax base because of this underground economy. Historically, it’s socially accepted and is a norm that people tax evade. That has partially to do with the Greeks not feeling that the state is actually providing services so there is a mistrust of the government. People don’t feel obligated to support through taxes. But there’s been a great clamp down on tax evasion and there have been different degrees of success on that. That has made it much more difficult for all businesses, especially small businesses. For instance, tavernas would never show their invoices or give receipts for food. Or they would give fake receipts and avoid paying, which was legitimate to some degree.
Consumption has also dropped dramatically. Tourists, on the one hand, are a support but Greeks who like going out at night and eating at tavernas have become much more westernized in that sense so they spend much less time in tavernas and spend much less. Small businesses have the same kind of difficulty. They’ve been largely focused on the Greek market. The Greek economy is not adequately extrovert, not adequately export-oriented. Its consumption historically has been largely driven by Greeks in domestic consumption. The crisis completely killed consumption in Greece and that was part of austerity measures. Small businesses have been completely squeezed out and in addition, because of the banking crisis, they haven’t been able to get loans. It’s kind of a vicious cycle of consumption being low, loans not being given, taxes all of a sudden piling up with serious penalties and that’s completely squeezed them out.
In what ways has tourism throughout Greece helped to save the economy?
Tourism has actually increased during the crisis. Of course, a lot of this has to do with the Arab Spring and the increased terrorism now in Turkey. So a lot of the destinations that are competing destinations for Greece have lost their tourists, who are looking for other outlets. Greece has been one of them. Greece has also become relatively cheaper because certainly, the prices have not increased as much as they have abroad. Also, tourist locations have kept their prices down given the crisis to attract tourists for that. Tourism increased quite impressively; it’s one of the few sources of support.
The unemployment rate in Greece has more than doubled since 2008 and currently stands at 21 percent. What does this mean for the country’s economy and its people?
The unemployment rate has been dramatically high, especially for the youth. I am a professor and I see students finishing with a degree and basically not being able to find a job. It has signified a very important brain drain. The most talented people leave Greece. It has also signified a dire situation in terms of poverty. Pensions have gone down so parents and grandparents are not able to support their children. Their children are not able to find jobs and their parents are often without jobs. The key aspect of the crisis is the long duration of unemployment at all levels but even more specifically at younger ages.