Greece's Long-Term Addiction to High Debt Levels
While some analysts view Germany as a bigger historical debt problem than Greece, a more detailed look at the situation reveals a different perspective.
The IMF maintains a historical public debt database for many countries and regions. The data reveals that Greece has a 130 year long addiction to high levels of debt, especially when compared to Germany and the European average.
It is important to note that we know little about actual public debt levels during and immediately after the World Wars for nations such as Greece and Germany (i.e., the straight lines on the chart during these wartime periods are due to an absence of data, and don't reflect actual values).
That said, starting in the mid-1880s, Greece's debt exploded from about 50 percent of GDP up to 225 percent of GDP within a decade -- and stayed at these very high levels until falling down to the still elevated level of 65 percent of GDP just before the onset of World War I. Between the World Wars, Greece's debt once again climbed up to high levels, reaching almost 110 percent of GDP.
After reaching a post-World War II debt minimum in the late 1950s, Greece's debt has been rising almost continuously -- particularly during the 1980s and early 1990s, and again after 2007 -- now standing at almost 160 percent of GDP. Over essentially the entire post-1880 period, Greece's debt levels have been well above the European average.
Compare this to Germany, a nation who historical debt levels have been generally low -- even up to the present.
Greece's first recorded debt default was in the fourth century B.C., and the country "has defaulted on its external sovereign debt obligations at least five previous times in the modern era (1826, 1843, 1860, 1894 and 1932)." Thus, debt defaults are certainly not unheard of in modern Greece. In fact, five defaults during a century appears rather common.
Looking at the historical record, it is easy to understand why Germany is concerned over Greece's economic management skills -- or lack thereof. History is a powerful teacher, and it clearly shows that Greece has a debt problem that didn't just emerge following the recent financial crisis. It had been festering since the 1980s. Greece was already carrying far too much debt well before 2007. And in the not-too-distant past, Greece has both seen its debt explode to even higher levels than at present and also defaulted on the debt. All of which must worry the more fiscally prudent members of the EU.