Euro versus Drachma: A Televised Debate

Posted on December 15, 2011 by M_Haliassos

On December 12, 2011, the Greek TV station ‘SKAI’ broadcast a debate between seven Greek economists on whether Greece should stay with the Euro or switch to a new Drachma. The debate was aired a second time on December 15. Five of the participants were members of Greek Economists for Reform, with four supporting the Euro (Haliassos, Meghir, Pissarides, Vettas) and one supporting the Drachma (Azariadis). All of us were in favor of immediate, large-scale reforms to promote productivity and ultimately growth of the Greek economy. The other two participants (Lapavitsas and Skaperdas) supported unilateral default and switch to a new Drachma. The debate is in Greek without subtitles. You can watch Azariadis and Pissarides here and the studio debate here. Answers to the question ‘What is the first thing that should be done?’ here. Comments on the future of the economy here.

Posted in Banking and finance, Economic development, Europe, General, Macroeconomics, Product market, Public finance | 5 Comments

A Great Depression for Greece?

Posted on December 7, 2011 by C_Azariadis

Costas Azariadis looks at the most recent “vital signs” of the Greek economy and argues that austerity measures without investment or market reform will not succeed in balancing the government budget. He finds that private economic activity has already dropped by 20% since 2008, and concludes that austerity by itself has brought the country to the brink of a Great Depression similar to the one that gripped Britain in the 1920’s and 1930’s. Continue reading →

Posted in Macroeconomics | 13 Comments

The recapitalization of Greek banks

Posted on December 3, 2011 by D_Vayanos

Because of the impending haircut on Greek government bonds, and of the large fraction of non-performing loans, Greek banks are likely to be insolvent on aggregate. Calls for increased state ownership of the banking system as a long-run solution to the problem should be resisted: state control distorts lending decisions of banks and hinders their effective regulation. Data on Greek banks’ holdings of Greek government bonds confirm the costs of state influence. Recapitalization should proceed promptly as follows. Solvent banks should be required to meet their Basel capital ratios, and in a way that involves not only asset sales but also injections of fresh capital. Banks that are insolvent but not deeply so should continue operations, existing equity should be set to zero, and capital ratios should be restored through injections of capital. In either case, existing equity holders should be given the chance to provide the necessary capital before public funds are injected. The process should be monitored carefully by the troika to ensure good corporate governance in the banks that receive public funds. Banks that are deeply insolvent should be liquidated through a good bank/bad bank scheme.

This article has been written by Peter Dalianes and Dimitri Vayanos. The full article here. A shorter version of the article titled “Greek banks and the state” in Kathimerini newspaper here.

Posted in Banking and finance | 1 Comment

Greek wages and international competitiveness

Posted on November 24, 2011 by H_Dellas

Greece has had large external imbalances (current account, external official debt) because both  the  government and the households spent too much and saved too little; and  spending fell disproportionately on foreign goods as the domestic goods were too expensive.  This article examines the options for restoring international competitiveness and external balance in Greece. Unless productivity enhancing reforms are enacted, average wages may have to decrease by at least 20% in order to make Greek traded goods competitive.

This article has been written by Harris Dellas, and is available here.

Posted in Macroeconomics | 3 Comments

Civic Capital(ism)

Posted on November 23, 2011 by E_Papaioannou

In a TEDx Academy talk that took place in the Benaki Museum, Athens, on October 10, 2011, Elias Papaioannou argues that the current economic crisis in Greece is driven by the lack of civic capital. Papaioannou starts his analysis reviewing recent research in political economy showing that personal and social values affecting cooperation and civic engagement are crucial for various aspects of economic development, such as international trade, efficient regulation, an uncorrupt bureaucracy, a sound institutional infrastructure, and entrepreneurial activity. He then discusses the ranking of Greece with respect to commonly used proxy measures of civic capital, such as trust, blood donation, tax evasion, and parents’ didactical methods at home. Continue reading →

Posted in Economic development, Education, Europe, General, Labour market | Leave a comment

To Euro!

Posted on November 21, 2011 by C_Pissarides

The article below, written by Yannis Ioannides and Chris Pissarides, is part of the ongoing discussion on this blog about the costs and benefits for Greece to continue being part of the Eurozone. The authors argue that Greece has a strong interest to stay in the Euro.

A shorter version of this article in Greek was published by Kathimerini, November 27, 2011. Continue reading →

Posted in Banking and finance, Europe, Macroeconomics, Public finance | 10 Comments

In support of the appointment of Lucas Papademos as Greek PM

Posted on November 12, 2011 by The Reforming Economist

We welcome the selection of Prof. Lucas Papademos as Greek Prime Minister at this most critical moment. Greece’s greatest need at this dreadful juncture is confidence in the ability of its government and its people to overcome the deep economic and social crisis. It needs to be reassured that its people’s sacrifices will not be in vain. Lucas Papademos’ good judgment, expertise, experience and detachment from political parties are exactly the qualities needed today of a Greek Prime Minister.  We wish Lucas Papademos success! He deserves the help of all in the Herculean task he is undertaking.

Signatories: Costas Azariadis, Nicholas Economides, Michael Haliassos, Yannis Ioannides, Costas Meghir, Chris Pissarides, Thanassis Stengos and Dimitri Vayanos

Posted in General | 3 Comments

Greek Economists for Reform comment on Greece’s political turmoil in the foreign media

Posted on November 6, 2011 by Y_Ioannides

Radio interview of Yannis Ioannides at Bloomberg Radio News on Friday 4/11/2011. The interview covers the issues pertaining to the Greek crisis while the debate on the vote of confidence was going on in the Hellenic Parliament.

TV interview of Nicholas Economides at Bloomberg News on Wednesday 9/11/2011. The interview covers the selection of a new Prime Minister, and Economides argues that Lucas Papademos is the right candidate. Other recent TV interviews of Nicholas Economides: CNBC Friday 4/11/2011, CNBC Thursday 3/11/2011, Bloomberg Friday 28/10/2011.

Interview by Dimitri Vayanos on VoxEU on Friday 11/11/2011.  Vayanos argues that leaving the Euro would be bad for Greece because this would reduce the pressure to do the necessary institutional reforms, that Lucas Papademos’ appointment as Prime Minister was a good development, and that more generally Greece needs more technocratic skills at high levels of the government.

Interview by Michael Haliassos to the Greek program of German Radio (Funkhaus Europa) on recent developments in Greece and future prospects. Haliassos argues that we need to take care of the current deficits but even more so to create a broad productive base in Greece, as a necessary precondition for future growth. This productive base can only benefit from high-level basic and applied research. Funding such research contributes to growth and prevents massive brain drain. He also states that the appointment of the interim government under Papademos is the best news for Greece in a long time.

Posted in General, Press | Leave a comment

Feature: Greece and the Euro

Posted on November 5, 2011 by The Reforming Economist

The dramatic events of the past week have brought again into question Greece’s participation in the Eurozone. Will Greece manage to stay in the Eurozone or will it have to exit? Should Greece seek to exit? More generally, what are the costs and benefits for Greece to continue being part of the Eurozone?

An early post on this blog by Harris Dellas argues that it made good economic sense for Greece to join the EMU, and that the cost of exiting the Euro would be substantial without any significant countervailing benefits. Costas Azariadis argues instead in a new post that on balance Greece would be better off exiting the Euro because its debt burden is not sustainable even under the new haircut, and because a devaluation would bring growth benefits. More contributors to this blog will express their views on this extremely important question over the next few months.

Posted in Banking and finance, Europe, General, Macroeconomics | 2 Comments

To Euro or not to Euro?

Posted on November 5, 2011 by C_Azariadis

In two interviews with Hurriyet Daily News (Oct. 11) and The Saint Louis Post-Dispatch (Nov.4), Costas Azariadis advocates a suspension of all interest payments on Greek debt and a return to the drachma as a stopgap measure that will buy Greece time to debate and implement the deep reforms needed for economic prosperity.  Exiting the eurozone will instantly balance the government budget, restore competitiveness to tourism and exports and reverse the income implosion the country is going through. Default will compromise future borrowing, anger the international community and hurt the reputation of the country but costly but continued austerity makes less sense. The real risk from default is that the relief it provides will be wasted in a futile attempt to preserve the status quo and thwart the necessary reforms. Continue reading →

Posted in Banking and finance, Europe, General, Macroeconomics | 33 Comments