This blog publishes articles by leading academic economists on issues relevant to economic policy and reforms in Greece. The crisis in Greece is also a time of opportunity: ambitious reforms can be undertaken that will not only stave off bankruptcy, but also modernize Greece’s economy and raise the productivity and incomes of Greek citizens on a sustainable basis. The articles in this blog aim to offer constructive proposals and impartial analysis of potential, proposed or implemented reforms that are based on the principles of modern economics and on lessons from recent cutting-edge research.
The editors of this blog do not necessarily endorse the opinions expressed by other contributors to the blog, the agenda of any political party, or the views of those who link or otherwise refer to the blog and its contents. Comments that do not concern the ideas and arguments published in this blog, but consist of personal attacks will be deleted.
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Current provisions for a too-early exit of the Hellenic Financial Stability Fund from Greek banks risk creating self-reinforcing market dislocations. By offering too many free warrants to private investors, at predetermined exercise prices, share prices of Greek banks could be driven consistently away from fundamentals. That could undermine the smooth transition to full private-sector ownership of the Greek banking system. Spyros Pagratis comments on these issues and suggests policy responses. The full article here.
Professor John Spraos, a distinguished Greek economist, Professor Emeritus at University College London and former economic adviser to Prime Minister Constantinos Simitis, kindly agreed to contribute to our blog. He writes:
I was discussing industrialisation with Michalis Haliassos and he suggested I contribute to the blog on the subject of its anaemic development in Greece. Instead of writing something new, I submitted an article which I wrote for Ta Nea in 1984 (published on August 9, 1984). While parts are dated, three key elements have continuing relevance: (1) cost competitiveness; (2) invisible earnings – tourism, shipping, emigrants’ remittances – as the source of the crowding out of industry (along the lines of what has become known as the Dutch Disease); (3) the late starter disadvantage. At the time, the novelty element (for Greece) was the middle one. In the current situation, industrialisation is on the agenda as part of the thinking associated with shifting the emphasis from austerity to growth. Greece has more than recouped the loss of competitiveness since pre-euro. Only Germany has done significantly better in the Eurozone. Cost competitiveness is not a sufficient condition for industrialisation. But it is a necessary condition. Are we close to satisfying it?
The article in Ta Nea was originally drafted in English, as published here. A scanned copy of the newspaper page where the article appeared in Greek can be downloaded here.
Yannis Ioannides, in a presentation at McGill University, Montreal, on April 4, 2013, discussed the issue of privatizations in Greece, as part of the stabilization program and Greece’s agreements with the Troika. Massive privatizations were put on the agenda of negotiations with the lenders, perhaps as a way to make assistance to Greece more palatable to voters in other eurozone countries, and were estimated originally as capable of generating 50 billion euros. The figure has been continuously revised downwards to less than 20 billion euros since first proposed. At the same time, political arguments over major privatizations reduce their projects’ values in the assessment of potential investors. This in turns feeds a vicious circle, a self-fulfilling prophecy, that has the Greek public being worried that Greece’s public wealth is being sold at “fire-sale” prices. Ioannides proposes that major privatizations can be seen as the proverbial “Big Push,” which the Greek economy desperately needs. Privatizations involve mainly undeveloped land throughout Greece. Furthermore, the capital inflows that the projects would likely generate over the purchase payments will cause increases in GDP for the same reason that the fiscal consolidation associated with the stabilization program has caused decreases in GDP.
Ioannides focuses on the proposed development of the site of the former Athens International Airport at Ellinikon. This site of 6 squ. kms at a distance of 8 kms from the center of Athens offers a rare opportunity, as vacant urban land on that scale so close to a metropolitan center is rarely available. Ioannides mentions that the public is in the dark about the assumptions made by the Hellenic Republic Assets Development Fund in evaluating the project for the purpose of soliciting bids by potential investors. He cites, in particular, the claim that “the full development of the Hellinikon site is expected to enhance Greek GDP by 0.3% per year and to create over 10,000 new jobs on a yearly basis for the next decade.” He argues that public review of the project via public hearings, a standard practice for large projects internationally, by involving the public and thus helping reduce social tensions, also stands to increase the value of the project to potential investors.
The text of the talk is available here and the slides here. The event, titled “How The Greek–Euro Crisis Is Transforming Europe … and Greece?” took place at McGill University on April 4, 2013, and was organized by Prof. Tassos Anastassiadis, Phrixos Papachristidis Chair in Modern Greek Studies at McGill, and by Prof. Stylianos Perrakis, RBC Professorship on Financial Derivatives, Molson School of Business at Concordia University. A video link for the entire event is here.
On March 6, 2013, a panel discussion on the Greek economic crisis took place at the London School of Economics. This was part of a broader set of events taking place during the week of March 4-8, as part of the 1st Hellenic Forum, organized by the LSE Hellenic Society. The speakers were Nikos Christodoulakis, professor of economics at the Athens University of Economics and Business, and former Deputy Minister of Finance; Paschos Mandravelis, columnist on economics, politics and society at Kathimerini; Elias Papaioannou, associate professor of economics at the London Business School; and Dimitri Vayanos, professor of finance at the London School of Economics. The latter two panelists are contributors to this blog. Christodoulakis argued that Greece’s stabilization programme caused an unnecessarily large decline in GDP and increase in unemployment. Mandravelis argued that while society expects the government to devise strategic plans for economic growth, growth will come if the government simply grants more freedom to the private sector by abolishing cumbersome regulations and bureaucracy. Papaioannou argued that even when growth resumes it is likely to be anaemic, with a high unemployment rate. Moreover the on-going social disintegration and political polarization could lead to the abandonment of any modernization effort of Greek economy and society. Vayanos argued that while Greece’s world ranking in terms of GDP remains high, that in terms of institutional quality is much lower, so GDP will continue its decline unless institutions improve. He sketched a number of necessary reforms, and discussed the political economy of reforms and why they are slow to happen.
The presentation of Elias Papaioannou is available here, and that of Dimitri Vayanos is available here. An article summarizing the discussion on SKAI news is available here.
Posted in Banking and finance, Economic development, Education, General, Justice, Labour market, Macroeconomics, Political economy, Press, Product market, Public finance, Public sector productivity
Promotion of competitiveness in the international market for goods and services, especially for fiscally troubled countries, is both an objective of European Union policies and a prerequisite for the longer-run viability and repayment of public debt. Massive horizontal salary cuts appear, at first, to promote competitiveness by reducing unit labor costs and to reduce fiscal deficits by reducing the wage bill of the public sector. Upon closer look, however, horizontal salary cuts have been much greater than needed for Greek competitiveness, providing an alibi vis a vis the Troika for reforms that are still to be implemented, but at the same time undermining both competitiveness and the potential to reduce public debt through sustainable development.
A shortened version of the post appeared in the newspaper To Vima on 6.1.13 (in Greek) and in Frankfurter Allgemeine Zeitung on 11.1.13 (in German).
Greece’s public debt is projected to rise to 189% of GDP in 2013. This debt level is unsustainable and a write-off will be needed. Some among Greece’s foreign partners are concerned that a write-off will ease the pressure on Greek politicians to reform the economy. The populist rhetoric of Greek opposition parties, who demand a write-off but reject reforms, strengthens these concerns. At the same time, a write-off is unavoidable, and continuing uncertainty on how the debt problem will be solved sinks the Greek economy further into depression and makes a chaotic default more likely. In recent articles in Bloomberg and Kathimerini, Costas Meghir, Dimitri Vayanos and Nikos Vettas argue that a debt write-off can be designed in a way to incentivize reforms. A fraction of the officially held debt, e.g., 50%, should be set aside to be written off gradually over the next five years or so conditional on Greece achieving a set of milestones concerning institutional and market reforms. Greece’s partners should devise a clear strategy that ensures the Greece’s debt becomes viable, while also promoting a thorough reform of the economy.
The Bloomberg article, titled “Greece needs growth, not austerity”, here, and the Kathimerini article, titled “Διαγραφή χρέους ως μοχλός για δομικές μεταρρυθμίσεις”, here. A Kathimerini article written by the same authors 1.5 year ago and proposing gradual debt write-off in exchange for reforms here, and the corresponding post on this blog here. A recent article in the Economist magazine with the same proposal here.
This is a follow-up on a previous post, which examines the link between politicians’ immunity and corruption. Both posts are based on a new academic study by Karthik Reddy, Moritz Schularick, and Vasiliki Skreta, which provides original and systematic evidence that democracies whose politicians enjoy stronger immunity protection do suffer from more corruption and poorer overall governance. This post summarizes the findings of this study. The summary here.
In the wake of the financial crisis and the numerous instances of public malfeasance it revealed, a growing number of commentators have argued for the abolition of the privilege of immunity from prosecution enjoyed by Greek politicians. A new academic study by Karthik Reddy, Moritz Schularick, and Vasiliki Skreta provides original and systematic evidence that democracies whose politicians enjoy stronger immunity protection do, indeed, suffer from more corruption and poorer overall governance. The study’s findings are particularly important at a time when many countries in the world teeter on the brink of economic collapse because their public finances were badly mismanaged. Likewise, movements such as the Arab Spring, the Indignados, and Occupy Wall Street reveal the strong desire of younger generations, who suffer the most from unemployment and lack of opportunity, for greater transparency and accountability in government. The evidence in the study suggests that the legal institution of immunity should be re-examined in established democracies.
We present this study in two parts. The first part explains why in countries with more immunity one would expect politicians to be more corrupt and to succumb more easily to pressure by interest groups. The second part, which will be made available mid-week, presents the actual findings of the study. Continue reading
The 11th Conference on Research on Economic Theory and Econometrics (CRETE) took place at Milos in July. 180 participants presented and discussed academic research in all areas of economics. This summer school involves Greek academics from Greece and abroad, as well as distinguished foreign guests. It is also an opportunity for PhD students in Greek universities to be exposed to world-class academic research. The first meeting took place in 2002 and the series has been continued each summer since. Details can be found at http://www.aueb.gr/conferences/Crete2012/
The 2012 program included keynote lectures by John Geanakoplos (Yale) and James Bullard (President, Federal Reserve Bank of St. Louis), as well as a panel on the crisis where Georges Siotis (EC-Task Force for Greece), Gikas Hardouvelis (Univ of Piraeus, ex senior adviser to Prime Ministers Simitis and Papademos), and Jacques Delpla (French Council of Economic Advisors) presented their views on the policy dilemmas in Greece and in Europe. The presentation of Siotis here, of Hardouvelis here, and of Delpla here.
In an interview (part 1, part 2) at the Greek National Radio, one of the organizers, Nikos Vettas, talks about the conference and about the importance of academic research in economics for economic policy in Greece.
In the next few weeks the ECB/EU/IMF Troika will deliver its report on the implementation progress and compliance of Greece. On the basis of this report the EU and the IMF will decide whether to release the jumbo instalment of 31.5 billion euros that was promised after the successful completion of the PSI. The Greek government on the other hand, wishes on the basis of this report, to get an extension or some easing on the implementation schedule. The aim is to increase its chances of survival given the precarious state of the government coalition and the presumed social reaction to the structural changes. Any easing could come from the rollover or restructuring of the Greek debt. Andreas Koutras examines the options available given the current state of the Greek debt and its schedule. Continue reading