This paper offers an interpretation of the Greek crisis focusing on the role of small firms. Most accounts of the crisis stress austerity resulting from macroeconomic conditions imposed from the outside. The paper argues that this is reductionist and ignores that the origin of the crisis lies in internal structural problems.
Weaknesses in the productive structure explain why the Greek economy has not been able to recover. A key – but widely overlooked – feature of this productive structure is the preponderance of the small firms. Unpacking this small firm economy helps to understand the origin and persistence of the crisis and to see new ways forward. Analysing the Greek economy through this lens, we can offer an explanation spanning the entire period from the 1960s – the transformation of Greece from an emerging economy to EU member and ultimately to the EZ problem child. Far from being an obstacle to growth, dynamic small firms in the past showed resilience and withstood major shocks – entry into the EU, globalisation and EZ membership. The distinguishing feature of the present crisis – and the reason why exit is proving so difficult – is that small firms have been hit harder and have yet to recover. Moreover, misdiagnosing the crisis in exclusively macro terms, may make small firms’ situation worse.