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In May 2010, facing an imminent disorderly default, Greece signed a draconian agreement for external financial assistance with its European partners and the IMF. But now, 15 years later, how is the country faring?
In May 2010, Greece signed an agreement for external financial assistance with its European partners and the International Monetary Fund (IMF). It did so to avoid a disorderly default and to finance its large primary deficit.
This was the first of three such ‘bailout agreements’ that involved drastic fiscal consolidation and extensive reforms in product, labour and financial markets (as well as debt restructuring in 2013) in exchange for official loans.
After avoiding a forced exit from the eurozone and having endured large economic and social costs, today Greece faces a brighter – but still uncertain – future. Although the country has improved its economic fundamentals, many macroeconomic, structural, institutional and social problems remain unresolved.
How bad was the Greek crisis?
Much has been written about the Greek crisis, including its causes and consequences, as well as the nature and impact of the agreed economic programmes. My own experience as the Finance Minister who signed the first Greek Memorandum of Understanding (MoU) with the European Union (EU) and the IMF can be found in two books on the Greek crisis and on the broader Eurozone crisis, as well as in several other contributions related to the aftermath of the global financial crisis or that of the Greek crisis. Institutional self-assessment can be found in reports by the IMF Independent Evaluation Office and the European Stability Mechanism Independent Evaluation Report. There are also many academic articles exploring various facets of this historic episode.
Macroeconomic figures give a sense of the depth of the crisis. In a ten-year period starting in 2008, GDP declined by 27% peak to trough, while unemployment was at its worst in 2013, at 28%.
As an economic crisis episode, the severity of the Greek story can be compared to that of the US Great Depression of 1929-32 (see Figure 1). GDP decline was equally steep in both cases, but the United States had a ‘V-shaped’ crisis: GDP fell sharply and rebounded equally dramatically. In contrast, Greece had a ‘U-shaped’ crisis: in real terms, GDP has yet to come back to its pre-crisis peak, and GDP per capita will not return to pre-crash levels before 2030.
Figure 1. Comparing crises: real output index (pre-crisis peak = 100)
Sources: Eurostat, IMF
Was the economic response wrong?
The severity of the Greek crisis can be traced back to several factors. The adverse initial conditions are one, reflecting lax domestic fiscal policies, opaque accounting and chronic weak competitiveness. This combined with a toxic political climate that made any consensus around much-needed policies and reforms impossible to deliver, prolonging the downturn.
A delayed and incomplete EU response is a second key factor. This included a lack of oversight and slow reaction time on the part of EU institutions and Member States, as well as an incomplete eurozone economic governance architecture which was missing the appropriate policy tools needed to help Greece navigate the crisis.
Mistakes in the policy response is a third factor. These took many forms. One was the continuous threat of eurozone expulsion in the narrative of the main Member State creditors. This kept the currency denomination risk very much present and undermined Greece’s return to international financial markets (as did the delay in advancing with a debt restructuring exercise). Another important error was the excessive austerity and the often-misplaced conditionality embedded in the fiscal consolidation paths mandated by the bailout programmes.
These programmes were the counterpart and condition for the disbursement of a total of €289 billion over the 2010-2018 period – roughly 120% of the Greece’s 2024 GDP. The underlying logic was that the downward pressure from deep fiscal consolidation and the associated reduced purchasing power of households would be balanced by the positive expectations on investment and growth from a more stable fiscal environment and across-the-board reforms. But as figure 2 below shows, these assumptions were overly optimistic, and the predicted macroeconomic scenarios were well off the mark.
Figure 2. How the programs were off the mark: Projections and realisations
Sources: IMF, European Commission, Eurostat.
Where are we today?
We can assess the situation in Greece today along three dimensions: fiscal and macroeconomic performance and prospects; the underlying social characteristics of economic growth; and institutional aspects related to the quality of governance.
In terms of fiscal figures, the imbalances that triggered the crisis have been eliminated. Starting grom a 15.4% deficit-to-GDP ratio in 2009, this year Greece is projected to run a balanced budget and around a 3% primary surplus. After peaking during the pandemic in 2020 at just over 200% of GDP, gross government debt is now below 150% and on a clear downward path, projected to be under 120% by 2030. Debt sustainability is assisted by long debt maturities, low average interest on the debt, and the early repayment of loans.
External imbalances are much improved but remain fragile. The 15% of GDP current account deficit of 2008 was eliminated during the crisis, as demand for imports collapsed. But lately it has crept back up to 5-6% of GDP, reflecting weak competitiveness and an overreliance on the tourism sector.
This fragility of the export sector and persistent weak investment growth is reflected in a moderate overall economic performance. While the 2.3% GDP growth rate for 2024 is significantly higher than in most EU countries (reflecting increased EU funding and private expenditures but also rising total factor productivity and the positive impact of structural reforms), projections by the IMF put medium-term growth at just 1.25%. This weak underlying potential growth reflects Greece’s persistent low productivity and adverse labour market conditions and demographics. This is problematic given the large stock of public debt and the pressure for incomes and public services to catch up after the crisis.
Turning to the labour market and social characteristics of growth, unemployment has declined from its 27% peak to below 10% in 2025. But this improvement masks a concerning underlying picture of unbalanced growth, with a large part of the population not participating in the economic rebound. Average wages in Greece are about 45% of the EU average – the lowest in the eurozone and third lowest in the EU. And while inequalities are reduced compared with the crisis period, the Greek Gini coefficient (a measure of income inequality) remains significantly higher than the EU average. One in four people are at risk of poverty or social exclusion, and one in four remain at risk of monetary poverty even after social transfers. A major contribution to this is the fact that public services such as education, health, and social services suffered greatly during the crisis, and remain underfunded and ineffective.
Finally, in terms of governance and institutions, the starting point is that Greece showed incredible resilience during the crisis. Its democracy and institutions survived – but they missed the chance for a fundamental restart. The justice system continues to be slow, economically ineffective, and socially unjust. It is widely distrusted by citizens, as are public administration and the political system. Perceptions of corruption remain high, the government has been recently widely criticized for an eavesdropping scandal and for its mishandling of the investigation into a major rail disaster, while several independent organisations have criticised the country in terms of media freedom.
Conclusion: Greece is moving in the right direction, but…
Greece has come a long way since the crisis. Its fiscal imbalances have been addressed, debt is on a declining path and the economy is growing at a healthy pace, buoyed by robust consumption and increased investment, including from abroad. But this positive picture needs to be tempered by a weak medium-term potential growth rate, reflecting poor productivity (despite reforms) and adverse demographics. This makes the country vulnerable to potential external shocks and – equally importantly – makes it difficult to create an environment of inclusive growth. Without this, it will be challenging for policymakers in Greece to regain citizens’ confidence in the state, including the services it provides and its institutions.
Author: Georgios Papakonstantinou
Georgios Papakonstantinou is Professor of Political Economy and Acting Director of the Florence School of Transnational Governance of the EUI. He is a former Greek Finance Minister.