National Growth Strategies and Welfare State Reform: The Case of Greece

Across the recent decades, Greece relied on different strategies to elicit economic growth. Over the 1950s and 1960s, the Greek economy, as a late-late industrializing economy, relied extensively on the instruments of developmental finance, protectionism and import-substitution industrialization. In a conducive political economy environment, these policies managed to deliver Greece from one of the fastest growing developing economies to middle income status into the 1970s. In the process of post-1974 democratization and Europeanization, the state was divested of some of its crucial postwar instruments (economic, institutional, and political). Industrial protectionism could not be relied upon, as the economy was gradually acceding to the European common market. From the late 1980s and through the 1990s, high EU inflows led economic growth in an economy that was losing external competitiveness; these inflows also served to offset the growing trade deficits. From the late 1990s and inside the Euro in the 2000s, the main drivers of economic growth were rapid financialization in an “emerging” market, and high rates of credit expansion (in an erstwhile “repressed” credit market) amounting to a demand-led, debt-driven economic growth. The debt crisis of 2009-10 (prompted by an unsustainable net foreign debt, and twin deficits in the area of 15% GDP) led to a front-loaded adjustment, characterized by harsh and sharply procyclical fiscal consolidation and internal devaluation, both of which amplified the recession. During the conditionality-led adjustment period of 2010-14, the Greek welfare state was reformed from a typical Mediterranean case into one containing strong liberalized features.