Is Greece the New Montreal?
Hosting the Olympics practically bankrupted Montreal. Via Megan McArdle, Victor Matheson argues that the current Greek financial problems may have stemmed from hosting the Olympics.
Greece's federal government had historically been a profligate spender, but in order to join the euro currency zone, the government was forced to adopt austerity measures that reduced deficits from just over 9% of GDP in 1994 to just 3.1% of GDP in 1999, the year before Greece joined the euro.
But the Olympics broke the bank. Government deficits rose every year after 1999, peaking at 7.5% of GDP in 2004, the year of the Olympics, thanks in large part to the 9 billion euro price tag for the Games. For a relatively small country like Greece, the cost of hosting the Games equaled roughly 5% of the annual GDP of the country.
Of course, the Olympics didn't usher in an economic boom. Indeed, in 2005 Greece suffered an Olympic-sized hangover with GDP growth falling to its lowest level in a decade.
Hosting Olymics is just a super-sized version of the fallacy that causes governments to fund billion dollar sports stadiums.
