From the European Commission assessment and recommendations for Greece’s stability and growth plan —
Over the last several years, the external accounts of the Greek economy have deteriorated significantly, with the high and persistent external imbalances mirroring to a large extent, the marked deterioration of the country’s fiscal position. The net international position has markedly worsened since 2004. The negative net international investment position already exceeds 115% of GDP in 2009. Consequently, the government sector is not only absorbing the main part of the available external financing, but also crowding out private-sector access to financing (p19).
That’s one way to look at it.Â The government has done all the borrowing from abroad in recent years.Â The other way is to ask: what if that same public borrowing had to be done domestically?Â Â Then you’re into the simple Keynesian mechanics whereby the only way to achieve domestic lending to the government is to compress economic activity so much that the private sector becomes a net saver.Â Current account correction through expenditure reduction.Â That’s Ireland.Â And note: even on the revised figures, Greece will have had an extremely mild recession in 2009 and 2010 by global standards.Â Yes there are structural problems.Â This highlights one key thing.Â The hawks who compare Greece to, say, Ireland, present the matter as coming down to the willingness to take on the public sector.Â But it’s also about the willingness to pull the rug from under your GDP.Â You’re only crowding out your private sector when there’s a private sector generating enough activity to be crowded out.