Crises, Opportunities, and the Evolution of Greece’s Growth Model in the EMU

Greece’s entry into the Eurozone was regarded as a unique opportunity to reform the country’s inefficient growth model. These hopes were dashed as the decade-long crisis of the 2010s wiped out a substantial part of the wealth accumulated during the previous decades and threatened the stability of Greece’s political system. The crisis highlighted the weaknesses of the Economic and Monetary Union (EMU); the economic governance agreed upon at Maastricht was inadequate to support a monetary union comprising many, widely diverse economies. On the other hand, given the EMU’s economic and institutional architecture, Greece was ill-prepared and unwilling to undertake the necessary adjustments to survive in the Eurozone. Understanding the economic and political aspects of this dual and mutually reinforcing failure is crucial for analyzing the challenges facing the Greek economy. In this article, we take a long-term view of the evolution of Greece’s political economy, adopting a framework inspired by the recent literature on comparative political economy. The aim is to determine whether Greece’s EMU membership affected its growth model and, if so, in what ways. The analysis shows that EMU membership has been crucial for the performance of the Greek economy during different periods but less so for the transformation of its demand-led growth model, which exhibits remarkable stability. This is because neither the ex ante nor the ex post conditionality imposed on Greece in the run-up to EMU entry and during the 2010s crisis, respectively, focused on the structural features of the Greek growth model.