I am lucky enough to be writing from the Cato Institute, which is holding a conference on the euro-crisis and the European welfare state today. One of the speakers, Aristides Hatzis, is a Greek lawyer who helps run the greekcrisis.net blog, which is well worth a visit. During his time to speak Hatzis laid out how extraordinary Greece’s economic achievements were in the years up to and following the brutal Nazi occupation. A copy of the arguments made can be found here.

From 1929 to 1980 the Greek economy’s average growth rate was 5.2 percent. In that time period Greece experienced dictatorships, occupation, civil war, and a military junta. It was only in 1974 that Greece began to resemble something like a liberal democracy. Some years later Greece was accepted into the European Community, as Hatzis explains: 

Seven years after embracing constitutional democracy the nine (then) members of the European Community (EC) accepted Greece as its tenth member (even before Spain and Portugal). Why? It was mostly a political decision but it was also based on decades of economic growth, despite all the setbacks and obstacles. When Greece entered the EC, the country’s public debt stood at 28 percent of GDP; the budget deficit was less than 3 percent of GDP; and the unemployment rate was 2–3 percent.

In 2011 Greece’s public debt reached 165.4 percent of GDP, the budget deficit was 9.1 percent of GDP, and the unemployment rate was 17.7 percent. What happened?

Hatzis’ theory is that the rise of the socialist PASOK party after the election in October 1981 is largely to blame. While in power PASOK established a bloated and inefficient welfare state, and while in power PASOK’s main opposition (New Democracy) was changed to the point that the differences between the two parties are few and far between. I would strongly recommend more of Hatzis' writings on the topic over at greekcrisis.net, where this argument is fully laid out.  

As per usual, Greece’s economic misery is largely the fault of government officials who managed to ruin what should have been a success story in development and recovery. It’s a shame that recent Greek protests are now aimed at those who understand that something resembling fiscal sanity will have to be in place for prosperity to be realized. It looks like the hangover from the socialist successes is a long way from over.