Growth, debt and sovereignty prolegomena to the Greek crisis

The paper reflects a basic premise: Greek participation in the Euro-zone marked a definitive institutional break in the process of contracting and managing public debt. Instead of internal debt, used extensively in earlier decades, euro-denominated sovereign issues were now placed in the international market. Thus, the Greek state became a net ‘exporter’ of financial claims to an extent unprecedented in its recent history. In assessing the prolegomena to crisis, I offer a review of the post-junta, pre-euro period, the forces leading to accumulation of (mostly internal) debt and the predominance of a ‘money illusion’ in distributional politics; I also engage an argument that the institutional shift that occurred with Euro-zone entry brought about a fundamental change to the very ‘sovereignty’ of Greek public debt. It expunged ‘money illusion’ but created the ground for policies that embodied ‘financial’ and ‘fiscal’ illusions. The entrapment of elites and electorates in various ‘illusions’ reflected a persistent tendency to underestimate the limits imposed by globalization on Greek economic policies. In the euro era, Greek policy became trapped in a self-feeding loop of debt-driven growth that effectively undermined the country’s sovereignty.