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.
Posted in General
On June 20, 2015, Michael Haliassos published a CEPR Vox post on the Greek crisis and the key failure of the adjustment program
The Greek adjustment programme failed. This column argues that the problem lay in the programme’s design. By focusing on deficit reductions and the wrong type of reform, it failed to build up the only thing that could provide the basis for debt repayment – namely a dynamic, export-oriented productive base. A broader reform agenda that creates hope would be accepted by Greeks and it would make eventual repayment more likely. The need for some patience in reaching the final destination of this journey should no longer be an excuse for not taking the first step.
Read the Vox post here.
Nicholas Economides, Stern School of Business, NYU
We are at the most critical phase of the negotiation, and it is imperative that Greece signs an agreement with the Europeans avoiding bankruptcy and the disaster of the New Drachma. The government says that it will accept an agreement only if it contains a solution on the debt. Before the elections, Syriza had proposed wiping out a large percentage of nominal value the debt (over 50%) to European countries and the European Stability Mechanism. This is practically impossible because every euro that Greece would win would have to be paid immediately by the European tax payers. The Greek parliament would not be willing to gift billions to the Finns, the Dutch, the French, etc.; likewise they would not be willing to give such a gift to Greece.
However, there exists another way to restructure the debt that I have proposed three years ago. Read full article
Thanasis Stengos (University of Guelph, Canada) posted an article (in Greek) in Huffington Post Greece. We present it here, in the original Greek text and in English translation.
There have been five months since the January election in Greece and four months from the February agreement for the extension of the current program until the end of June. The negotiations between the Greek government and the lending partners (European institutions and IMF) have led nowhere as there has been a widespread belief in Greece that the Greek elections by themselves constituted a “game changer” and the other side sooner or later would have to compromise on its demands for additional fiscal adjustment measures needed to cover the existing revenue shortfall as well as necessary reforms that would facilitate future growth.
At the end of November the fiscal shortfall was of the order of less than a billion Euros (around 900 million), while currently its exact figure hovers over 5 billion. Read the full article.
Article by Elias Papaioannou, published in Kathimerini on 14.6.15 (in Greek).
The article draws on ideas expounded in a joint article with Richard Portes and Lucrezia Reichlin published by Project Syndicate.
We have reached the end of a negotiation that took several months and was associated with a debilitating lack of liquidity for the Greek State and for the private sector and with enormous uncertainty. If an agreement with the Europeans is not immediately reached, Greece will default, inside or outside the Eurozone. Grexit would be a total disaster, involving collapse of the banking system due to massive withdrawals, high inflation, tremendous loss of purchasing power for the Greek population, shortages of basic goods, and marginalisation of the country. Even a default within the Eurozone would soon lead to Grexit since it would be extremely difficult for any Greek government to handle it. It would require enormous support from the ECB, which would not be forthcoming. In a short time, the Greek government — voluntarily or under pressure — would transition to the new Drachma. Thus, both types of default (inside and outside the Eurozone) lead to the total disaster associated with the new Drachma.
A last-minute agreement will be far from perfect and without the necessary structural reforms. However, it will be much better compared to the chaos of default and Drachma. The Greek government must sign this agreement now!
• Marios Angeletos, ΜΙΤ
• Costas Azariadis, Washington University in St. Louis
• George Constantinides, University of Chicago
• Haris Dellas, Universitat Bern
• Nikos Economides, New York University
• Michael Haliassos, Goethe University Frankfurt
• Yannis Ioannides, Tufts University
• Costas Meghir, Yale University
• Stylianos Perrakis, Concordia University
• Manolis Petrakis, University of Crete
• Chris Pissarides, Nobel Laureate, London School of Economics and University of Cyprus
• Thanasis Stengos, University of Guelph
• Dimitris Vayanos, London School of Economics
Note: This declaration was published on the cover of the Sunday Edition of the Greek newspaper Kathimerini on June 14, 2015.
On January 22, 2015, the Financial Times have published a letter signed by eighteen economists, including Nobel Laureates Joseph Stiglitz and Chris Pissarides (GEfR founding member). The letter argues that Europe will benefit from Greece being given a fresh start. The authors start from the premise that Greece’s debt is clearly unsustainable and that an economy cannot grow out of recession and keep a reasonable growth path when it has to make repayments (mostly abroad) for a debt as large as Greece’s. They suggest ways of easing the burden of the debt without default and without any other reneging on Greece’s obligations to its lenders. Their suggestions include postponement of the debt until Greece’s growth rate rises to 3% and until Greece recovers half of its lost income; providing more resources for public investments; writing off parts of the debt after bilateral agreements with official lenders, and other similar suggestions.
The shadow economy is inversely related with the per capita electronic payments in the European countries. The Greek economy is characterized by a surging shadow economy and one of the lower numbers of per capita electronic payments in Europe. Manthos Delis, Professor at Surrey Business School, argues that the Greek economy stands to gain a lot in terms of increased fiscal revenue if it manages to increase the electronic payments to a number close to that of the more transparent European countries. He also proposes a number of ways through which this policy can be implemented. Read more (in Greek)
In a full-page interview in the Greek newspaper “Kathimerini” on Sunday, January 11, 2015, Michael Haliassos describes where the Greek adjustment program of the past five years has gone wrong, and why Greece has no room for creating further uncertainties and risk for the euro zone. With regard to the latter issue, if Greece creates uncertainty about its commitments to reforms and to the euro, it is likely to be asked to choose between accepting harsh measures and staying; or leaving the euro and the EU and surviving on its own. It can no longer “threaten” to do the latter, as it has come to be considered a “special case” that is not of systemic importance. Greece should go on with the reforms necessary to create productive potential instead of creating uncertainty among other euro zone countries. Read the article.
Article of Costas Meghir (Douglas A. Warner III Professor of Economics, Yale University) in Greek.
Strategic plans are used to scope out the strengths and weaknesses of the Research
& Development (R&D) enterprise, identify areas where critical mass exists to enable rapid progress and innovation, promote and strengthen connections of the research establishment with the entrepreneurial community, and allocate investments in a fair and competitive manner. Such plans are designed to promote advancement of science, technology and innovation in any knowledge-based society that aspires to high level technological accomplishments and rapid and sustained economic growth.
The National Council on Research and Technology for the period October 2010-2013 identified the development of a Strategic Plan as an important priority
upon its appointment in the fall of 2010 and a draft plan was completed in the fall of 2013. The plan was based on input from the research community and from the innovation sector over a two-year period. This proposed plan was officially released in August 2014, as potential but non-binding input to the current design efforts, carried out by the Ministry of Education and by the current members of the National Council on Research and Technology. The principal goal of the strategic plan is the identification of areas of strength and excellence that can be further advanced and can become engines for progress and growth.
The published version of the proposal can be found here.