July 10, 2025 by Dan Mitchell @ International Liberty
For many years (2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019), Greece has been one of my go-to examples for bad government policy.
But that’s changed this decade. I wrote earlier this year about how Greece reduced the burden of government spending over the past five years.
Yes, the public sector is still far too big, but all it took was some modest spending restraint to shrink government from nearly 60 percent of GDP to slightly under 50 percent of GDP.
I want to expand on that analysis by now sharing a chart showing what has happened to government debt.
As you can see, the IMF has calculated that gross debt as a share of GDP has plunged from more than 200 percent of economic output to less than 150 percent of GDP.
By the way, debt is projected to drop to 125 percent of GDP if Greece stays on its present path of spending restraint.
All things considered, a very strong example of both my Golden Rule and the 20th Theorem of Government.
It’s also validation of what I wrote in 2015 about Greece’s debt being sustainable. Simply stated, any nation can dig itself out of a fiscal hole with spending restraint.
Heck, these lessons go back to the 1800s.
So how did Greece reverse its decline? As the Wall Street Journal opined back in 2020, voters elected a sensible government that shifted policy in the right direction.
The eurozone’s perennial laggard suddenly finds itself six months into a remarkable economic turnaround. …Credit Kyriakos Mitsotakis, …whom fed-up voters elected prime minister in July after a decade of failed experiments with centrist technocracy and radical leftism. …Mr. Mitsotakis has cut the top tax rate on corporate profits to 24% from 28%, and some individuals have seen their tax rate fall to 9% from 22% and their property taxes cut.
He aims to introduce a flat tax of €100,000 for wealthy foreigners who move to Greece to invest. He’s also dusting off privatization plans… Athens has already proven the Keynesian doubters wrong. Bailout after bailout after dreary bailout failed because EU leaders took slow growth for granted and focused instead on tax increases to salvage the fisc.
Three years later, the U.K.-based Economist lauded Greece’s improved policy environment.
Ten years ago it was crippled by a debt crisis and ridiculed on Wall Street. Incomes had plunged, the social contract was fraying and extremist parties of the left and right were rampant. …Today Greece is far from perfect. …But after years of painful restructuring, Greece topped our annual ranking of rich-world economies in 2023. Its centre-right government was re-elected in June. …Greece shows that from the verge of collapse it is possible to enact tough, sensible economic reforms, rebuild the social contract, exhibit restrained patriotism—and still win elections.
Now, Bloomberg has added an endorsement.
Here are some excerpts from a story last week by Viktoria Dendrinou, Sotiris Nikas, and Paul Tugwell.
For many Greeks — pensioners, unemployed youth, small business owners — the scars persist in a country that was on its knees. But for the believers, the transformation of an economic outcast into a poster child for financial prudence is yielding rewards… Today, Greece is outperforming its euro zone peers on several fronts. It’s growing faster than the European average and is one of only a handful of EU nations achieving budget surpluses. …
Greece has consistently outperformed its fiscal targets at a time when many European nations face worsening public finances. …Greece’s 10-year bonds now yield around 3.30%, while the premium over equivalent German debt narrowed to its tightest level since 2008. In early 2012, the yield was 44.2%. …At 7.9%, Greece’s unemployment rate is at a 17-year-low… In 2023, the latest data available, more people moved to Greece than those departing for the first time in 14 years.
The article notes that there are still plenty of reasons to worry.
But there’s no doubt that Greece has moved in the right direction. Financial markets seem to agree, based on this chart from the Bloomberg story.
I’ll conclude with two lessons.
- First, Greece shows that an economy can be rescued by adopting better policy. What Greece is doing isn’t as impressive as what’s happening in Argentina. But Argentina started in far worse shape on the “socialism slide.”
- Second, Greece shows that it should be very simple for the United States to arrest its fiscal decline. All that’s required is modest spending restraint, which has happened at times in recent American history.
But notice I wrote “should be.” I’m not very optimistic that there are any Republicans or Democrats in today’s Washington that are willing to enact the policies (spending cap, entitlement reform, etc) that would save America.
P.S. Shifting back to Greece, here are two amusing videos (here and here) from 2012 about the Greek economic/fiscal crisis.
P.P.S. Sadly (but predictably), the OECD continues to give Greece bad advice.