If you blinked, you might have missed it. But last November, there was a moment of good news for Greece. New economic data revealed that Greece's economy had actually stopped shrinking at the beginning of 2014. It was the end of a six-year-long recession. Those were the halcyon days—yes, there was more than one—of economic growth, 25.9 percent unemployment, and a euro zone that seemed to have survived the worst.
It turned out, however, that Greece's depression was still nowhere near done. Its unemployment rate is basically the same as it was back then, the country is back in recession, and it is expected to default on a debt payment in a few hours, perhaps triggering an exit from the euro zone within a few days.
It is possible, but extremely unlikely, that Greece will find a way not to default. Even if it doesn't, though, it could still reach a new agreement with Europe to avoid an even worse crisis. But they only have a few days to do that. The Greeks are heading to the polls on Sunday to decide whether they want to accept new cuts to pensions and higher sales taxes in exchange for more-of-the-same from Europe—and if they vote No, they might all but get kicked out of the euro.
Whatever happens, though, it is impossible not to recognize that the Greek story will be one of economic tragedy that far surpasses what modern Western civilization has ever experienced. You can see all this easily enough in the chart above, which I've modified from The Economist. It compares Greece the past few years with what used to be the gold standard of economic catastrophe: the U.S. during the Great Depression.
Now, Greece's economy fell marginally less than America's did back then — around 27 percent at its worst — but the biggest difference between the two is the slope of the recovery. The U.S., as you can see, rocketed back once FDR devalued the dollar and started spending more. Only the double whammy of premature fiscal and monetary tightening knocked it off track in 1937.
Greece, though, has gotten nothing but fiscal and monetary tightening. It doesn't really have anyone to blame but itself for that first part. The Greek government, after all, wasn't forthcoming about how much it was spending during the boom, so it's had to cut its structural deficit -- that is, before interest payments -- by 20 percent of potential GDP. (As point of comparison, the U.S. "only" cut its around 3 percent over the same period).
But equally problematic has been the European Central Bank's see-no-depression, hear-no-depression approach to policymaking. Every step of the crisis, it's debated whether to do too little too late or too late too little, before deciding: yes. And that's not counting the times it's made things actively worse by raising rates, like it did twice in 2011, to stamp out inflation that was already passing. Things are better now that it's started to buy country's bonds, but even this hasn't helped Greece since they've been excluded from the program.
It's all been barely enough to keep the common currency together, but not out of a Japanese-style lost decade. Indeed, Greek prices have been falling for over a year now, which has been both a cure and a disease. That's because lower wages have helped Greece regain a measure of competitiveness, while at the same time making debts harder to pay back. If the ECB would just keep inflation around 2 percent, so Greece could get its relative wages down without having to actually cut them, the country could actually recover within a generation.
But that's not the world the live in, which is why the European Commission thinks that Greece's comeback, like its collapse, will be nasty, brutish, and long. As you can see in the dotted line, the Commission projects that Greece's economy will still be 24 percent below its pre-crisis peak by the end of 2016. At that pace, it could take till 2024 or so for Greece to get all the way back to where it was in 2007.
In other words, Greece is only halfway through its Greatest Depression.
This story was adapted from a November 2014 article.