‘Compulsory’ Economic Deflation Turned Political Risk: Effects of Austere Decision-Making on Greece’s ‘True’ Economy (2008–2015) and the ‘Eurozone or Default’ Dilemma

Abstract

The drastic internal deflation approach adopted as a remedy to the Greek government debt problem, gave rise to an unforeseen socio-humanitarian crisis, and increased political populism and polarization. While the macroeconomic merits of this strategy are debatable, politically, Greece seems to have turned into a key political risk, for itself, as well as for the Eurozone, with potentially significant impacts on the world economy. Considering the different perspectives between the current Greek government and EU decision making and stakeholder echelons, we wonder if the ‘true’ value of ‘curing’ the Greek government debt is really equivalent to a rip in the Eurozone, or to Greece’s defaulting, which seems to be the only political dichotomy being considered at present. In this paper, we seek to depict some of the key arguments behind this political economy standoff, by depicting high-level shifts brought about in the Greek economy and its institutions, and the impact of the economic austerity measures on the Greek society.