The cost of the Greek crisis

2 July 2015

Greece became the first member of the Eurozone to default on its debts when it missed a repayment deadline for $1.7 billion of IMF money. The negotiations and manoeuvring between the Greek Government and its creditors have become increasingly bitter in recent weeks. On the creditors’ side, the troika of the European Commission, IMF, and European Central Bank are demanding that Greece raise taxes and cut welfare spending to repay the money it has borrowed. That debt now exceeds 180 per cent of Greek GDP. For their part, the Greek Government are concerned about the impact that those policy measures will have upon their country and have asked for greater leniency.

The discussions about financial contagion and Grexit are well rehearsed but an article published yesterday by the UK’s Office for National Statistics sheds further light on the human cost of the political impasse in Greece.

Economic performance through the recession is often talked about in financial terms, using measures such as GDP. Those measures are useful but they do not provide a full picture of how the recession is affecting people. Recessions have an impact on many other things that matter, such as employment, the strength of family networks, trust in others, and one’s sense of security. To measure the total effect on a country, many statistical agencies now survey citizens’ level of wellbeing. The ONS analysis details the change in wellbeing across the world’s wealthier nations since the recession began in 2007 and the chart below summarises the effect on GDP per capita and life satisfaction, highlighting the performance of Greece and the UK.

Effect of the recession on wellbeing and incomes

It shows that changes in GDP influence people’s wellbeing but fail to provide the full picture. Poland’s GDP per capita, for instance, has risen by over 45 per cent since 2007 but its citizens’ wellbeing has fallen slightly over that period. In contrast, the UK has has the fourth smallest increase in GDP per capita of any OECD nation, but wellbeing remains at pre-recession levels.

Greece stands out as the only OECD nation in which incomes are still below the pre-recession peak, having fallen by over 10 per cent since 2007. However, even that underestimates the cost of the recession, with wellbeing falling by over 27 per cent. That single measure is backed up by the detailed data in the ONS’ report, which shows that Greece has the highest unemployment rate (27 per cent), the lowest proportion of people feeling safe (47 per cent), the greatest proportion of households struggling to make ends meet (78 per cent), and the greatest proportion of households at risk of poverty (46 per cent).

In its recent publication on the UK’s upcoming Spending Review, Reform was clear that the core priority of Government policy should be to sustainably and inclusively improve people’s wellbeing. The ONS’ work shows that, as the OECD nations recover from the effects of the recession, the wellbeing of the Greek people has been left behind.

James Zuccollo, Senior Economist, Reform

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