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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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Location: Washington, D.C.

greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

04 September 2010

Greece’s Convergence with Europe

Our generation has grown up with the idea of Greece as a laggard in Europe: in this narrative, Greece’s entry into the European Economic Community in 1981 was a political gesture, even though the country was economically less developed than its European peers at the time. The graph below tells a more nuanced story of Greece’s economic path in the last half-century.

The graph shows Greece’s per capita Gross Domestic Product as a share of the average in the EU-15. What it means is that at 100, Greece’s per capita income is equal to the average in the European Union (EU-15) – at 94, it means that Greece’s average income is 6% less than the average European Union income, adjusted for differences in prices (purchasing power parity). Note also that this comparison is against the EU-15, so it includes countries that were not, at the time of the comparison, members of the European Union. 

I have colored certain landmark political years to facilitate the story telling. In 1960, Greece’s average income was 57, which means that on average Greek citizens had a standard of living that was 43% below their European peers. Since 1962, however, the country started to converge with Europe, a trend that remained even during the years of the military junta (1967 to 1974). In fact, by 1973 – the last full year of the military junta and the time of the first oil shock – Greeks were barely below their European counterparts (94 vs. 100).

Between the restoration of democracy in 1974 and the entry into the European Economic Community in 1981, Greece was more or less able to sustain this gap, and in 1978, Greece’s per capita GDP peaked at just 5% below the European average. Then started a secular fall in living standards relative to other European countries and by 1989, Greece had returned the same relative standard of living that it had in 1967.

The next ten years until the entry into the Eurozone in 2001 were a wash as Greece grew just enough to sustain its gap with the rest of Europe. Then came a mini convergence which peaked in 2004 and then again in 2009 (it is not clear to me how much the revision in GDP, which I believe has been backdated only to 1997 affects this mini trend). Effectively, the 2009 number is the highest since 1983, but the European Commission forecasts that the ratio will drop to 80 by 2011.

In other words, the story of Greece as a laggard is true but incomplete. By the time of its entry into the EEC, Greece had accomplished an extraordinary feat in convergence with European incomes. It was in the 1980s when Greece fell behind and throughout the 1990s it just managed to sustain its gap as the focus of economic policy was on meeting the criteria to enter the Eurozone rather than to raise real incomes. By 2009, Greek incomes were on par – relative to the rest of Europe – to what they were in 1970 (rising at the time) and 1983 (falling).

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