Introduction

In December 2008, downtown Athens experienced three nights of street battles, arson and looting that became headlines in the international press. The pictures of these riots brought suddenly into the spotlight the reality of a Greece that struggles and seems increasingly deprived of any positive prospects in the aftermath of the recent financial crisis, at a time that the global economy seems to gradually recover. This picture is in sharp contrast to the constant and high growth rates of a Greece that managed to join the eurozone a decade earlier. But a closer inspection of the fast growing Greek economy in the past 15 years and the failing economy that teeters on the edge of bankruptcy and freefall today reveals that what initially appears as a unique international paradox is, in the end – and once all the details have been carefully put together – simply a rather straightforward textbook case of modern economics and political economy. That is because Greece combined until now strong economic performance – that is, rapid GDP growth and strong productivity growth – with a very poor performance and pathologies on many other fronts. These failings range from a massive public debt, poor labor/product market institutions and low competitiveness to poor environmental protection, underperforming educational system and high levels of corruption. It is all these weaknesses that, when the global credit party ended, led Greece very close to technical default and to bankruptcy.