It’s all Greek to Economists
Financial turmoil has roiled Greece over the past several weeks. There is real concern that budget deficits in that country will lead to its government defaulting on its debt and in the worst-case scenario the potential unraveling of euro currency itself. So, how did Greece find itself in such dire straights? The 2004 Olympics are a large but overlooked piece of the puzzle.
Greece’s federal government had historically been a profligate spender, but in order to join the euro currency zone, the government was forced to adopt austerity measures that reduced deficits from just over 9% of GDP in 1994 to just 3.1% of GDP in 1999, the year before Greece joined the euro.
But the Olympics broke the bank. Government deficits rose every year after 1999, peaking at 7.5% of GDP in 2004, the year of the Olympics, thanks in large part to the 9 billion euro price tag for the Games. For a relatively small country like Greece, the cost of hosting the Games equaled roughly 5% of the annual GDP of the country.
Of course, the Olympics didn’t usher in an economic boom. Indeed, in 2005 Greece suffered an Olympic-sized hangover with GDP growth falling to its lowest level in a decade.
While its hard to place all of the blame for the current Greek meltdown on the Olympics, the lingering debts from the Games are undoubtedly exacerbating an already difficult situation.