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Greece has managed to achieve great rate of development at the period 1953-73 based on domestic resources. Agriculture, manufacture were assisted by state protectionism (tariffs, subsidized interest rate etc.) and comparatively low cost of production. The fist oil crisis caused trouble. Since 1981 a policy of boosting aggregate demand in order to boost economy was adopted. But in 1981 Greece became a member of European Common and expansionary policies boosted trade deficits instead of domestic production. External state debt increased rapidly and financed mainly consumption instead of investments. Ratio of external debt to GDP was around 14% in 1974, 28% in 1981, 85% in 1985, 113% in 1993 and thw hole period till 2007 it was around 100% despite rapid growth (financed by borrowing). Entrance at the eurozone permitted lower cost of borrowing, but there was no away to adjust and correct macroeconomic imbalances. In the past it would occur through currency devaluation. By using expansionary policies we avoided recessions, but when the global economic crisis erupted we were in much worse position than most European countries because we had high levels of external debt, trade deficit.
In 2009 the external trade deficit reached the astonishing 15% of GDP. In eurozone, the only way is internal devaluation which caused rapid fall of incomes, value of assets. Combination of asset deflation and debt inflation is disastrous and unless there is substantial debt relief it is questionable how the country can recover.
