The Greek economic crisis: causes and alternative policies

The Greek economic crisis is primarily structural and the result of an international economic impasse that developed in 2007, with devastating implications for the struggling peripheral economies of Europe. This article suggests that falling profitability led to the stagnation of profits, which in turn discouraged new investment, decreased production and increased unemployment. The resulting recessionary economic environment, in conjunction with the mounting public debt and the austerity policies imposed on the Greek economy by the so-called ‘troika’ of creditors in 2010, has decimated the Greek economy even further, causing one of the worst economic crises since the Second World War. The article also provides some broad guidelines for an alternative economic policy.     

Stories,Fables, Parables,and Myths: Greece and the Euro Crisis,Toward a New Narrative

The debt crisis in the Eurozone has generated an intense academic debate about the appropriate policy response to the crisis. At the same time, the general public hears a variety of stories about the crisis, and especially stories about the debt crisis in Greece. This paper deals with the economic significance of stories, in particular with the importance of the Greek "morality tale." Stories are powerful in influencing public psychology, and they can affect the economy through fluctuations in confidence and "animal spirits." The paper considers the development of the Greek story through a web of related stories, fables, parables, and myths. It argues that the story dramatically distorts the reality of the debt crisis in the Eurozone and poses a threat to the global economy through its adverse effects on confidence and "animal spirits." It concludes that Europe needs not only a new policy direction, but also a new narrative about the debt crisis.     

中国主权资产负债表及其风险评估(下)

2000——2010年,中国的国民资产负债表呈快速扩张之势。对外资产、基础设施以及房地产资产迅速积累,构成资产扩张的主导因素。这记载了出口导向发展战略之下中国工业化与城镇化加速发展的历史进程。在负债方,各级政府以及国有企业的负债以高于私人部门的增长率扩张。这凸显了政府主导经济活动的体制特征。对主权资产负债表的风险评估表明:(1)总体上,中国主权净值为正,因而,在相当一段时间内,发生主权债务危机的概率极低;(2)近期的风险点主要体现在房地产信贷与地方债务上,而中国的长期风险则更多集中在对外资产负债表、企业债务与社保欠账上。这些风险大都是或有负债风险,且与过去的发展方式密切相关;(3)主权债务动态的模拟进一步揭示出维持经济增长率与利率之差对于化解债务风险的重要性。因此,转变经济发展方式,保持经济可持续增长,是应对主权债务风险的根本途径。     

Structural change and macroeconomic policy: the case of Greece (1981–85)

This article examines one aspect of ‘alternative economic strategies’ which seek to introduce planning and other interventionist economic policies in order to promote structural change. Experience has shown, most recently in France and Greece in the 1980s, that such strategies are often abandoned because of macro-economic imbalances, such as current account crises. Thus it seems that a crucial aspect of such strategies should be the co-ordination of short-term, or macro-economic, policies with longer-term supply-side policies. The interest in the Greek experiment (1981–85) lies in the fact that the Greek socialists were aware of the need for such co-ordination and their strategy for ‘stabilization through development’ and ‘gradual adjustment’ was formulated for this purpose. This article looks at the economic theory underlying this approach and the implementation of the strategy. However it is argued that the degree of control necessary for the successful implementation of the strategy was lacking. The failure of macroeconomic policy once more contributed to the abandonment of an alternative economic strategy. I investigate the reasons behind this failure and draw some lessons of more general relevance for the successful co-ordination of macroeconomic and supply-side policies.

Accumulation involves a process of continual structural transformation, a qualitative change, in which the scale, content and location of economic activity are progressively transformed. There is no automatic mechanism ensuring that this takes place in a desirable manner or at a desirable pace (Eatwell and Green, 1984: 202).     

The hard shadow of the Greek economy: new estimates of the size of the underground economy and its fiscal impact

This article presents new estimates of the Greek underground economy and explores the link between the underground economy and aggregate debt. We show that the Greek underground economy has been underestimated heavily and has been on a rising trend again since Greece adopted the Euro. We also present evidence that the size of the underground economy is positively related to the debt-to-GDP ratio, implying that fighting the underground economy is also conducive to financial and macroeconomic stability. Our results suggest that for our sample of 11 EMU member countries, the loss of the inflation tax as an economic policy instrument had drastic consequences. While the underground economy did not have a statistically significant impact on aggregate debt before the introduction of the Euro, it has pushed up the debt-to-GDP ratio in our sample since.     

The Eurozone Sovereign Debt Problem: What It Means for U.S. Exports

The European sovereign debt problem became the focus of world attention in 2010, when the interest rates on Greek government bonds rose dramatically, requiring immediate action by the European Union to avoid an imminent default. It has become clear that the problem is not limited to Greece, but a more general problem of the fundamental imbalances and underlying inconsistencies in the Eurozone economic system of using a single currency for a set of countries that lack a unified economic and political system. Financial markets reacted to the debt offering of the other deficit countries in the Eurozone by increasing interest rates on their sovereign debt as well. The major consequences are likely to be largely felt by the Eurozone countries themselves, some of whom will be forced to go through significant structural adjustments over the coming years. The adjustment process could generate a range of alternative macroeconomic outcomes for affected countries??including differences in growth, exchange rates, and investment??which could have significant implications for U.S. trade. This paper attempts to allay some of that uncertainty by exploring a wide range of alternative global macroeconomic outcomes and their potential impact on U.S. exports. The analysis extends the work done in a previous paper which focused on U.S. agricultural exports and its major components. While U.S. exports vary across the scenarios, continued strong economic growth in developing countries supports demand for U.S. exports. Because the EU has represented a declining share of U.S. exports, the direct impact of changes in European demand affects U.S. exports less than the secondary effects of changes in exchange rates and global investment patterns associated with alternative EU outcomes.     

Size and Determinants of Capital Structure in the Greek Manufacturing Sector

Increasing competition in the European Union (EU) and world markets affects the Greek manufacturing sector. Capital structure is essential for the survival, growth and performance of a firm. There has been a growing interest worldwide in identifying the factors associated with debt leverage. However, nothing has been done so far in contrasting small and medium sized enterprises (SMEs) and large sized enterprises (LSEs) on these aspects. SMEs are very important in the Greek manufacturing sector for employment and growth. Empirical studies show that capital structure and the factors affecting it vary with firm size. In this paper we investigate the determinants of capital structure of Greek manufacturing firms and formulate some policy implications that may improve the financial performance of the sector. Our study utilizes panel data of two random samples, one for SMEs and another for LSEs. The findings show that profitability is a major determinant of capital structure for both size groups. However, efficient assets management and assets growth are found essential for the debt structure of LSEs as opposed to efficiency of current assets, size, sales growth and high fixed assets, which were found to affect substantially the credibility of SMEs. In an era of increasing globalization, the findings imply that Greek SMEs should focus their efforts on (a) increasing their cash flow capacity through better assets management and achievement of higher exports and (b) ensuring good bank relations, but at the same time, turn to alternative forms of financing. Greek LSEs should adopt strategies that will lead to the improvement of their competitiveness and securing new forms of financing. Government policy measures aiming at structural changes and economic efficiency should be designed clearly depending upon its targets: SMEs need policies that will encourage information exchange and co‐operation in local and foreign markets and use of e‐business, as well as, financial assistance. On the other hand, LSEs should be supported by policies aimed at new high‐technology investments, entrance of new firms and foreign investments in the country, tax alleviation and increase of R&D and training expenditures. The upgrading and transparency of the capital market in Greece is expected to improve the capital structure of Greek manufacturing firms.     

The financial fragility and the crisis of the Greek government sector

The purpose of this paper is to develop Minskyan financial fragility indices for the government sector and to examine the financial structure of the Greek government before and after the onset of the sovereign debt crisis in 2009. We provide empirical evidence that clearly shows the growing financial fragility of the Greek public sector in the 2000s. We also assess the effectiveness of the implemented bailout adjustment programmes in Greece and claim that the conducted austerity measures and fiscal consolidation have not significantly improved the financial posture of the Greek government sector. We argue that the implementation of fiscal and wage austerity in an economy that lacks structural competitiveness produces prolonged recession and unemployment with adverse feedback effects on the financial fragility of the government.     

A Note on the (Un)Pleasant Arithmetic of Fiscal Policy: The Case of Italian Public Debt

Using the simple arithmetic of government budget constraint, we perform an illustrative analysis on the Italian case, investigating the consequences on the main public finance aggregates of the adoption of a fiscal policy rule responding to past real debt/GDP ratio. Such a rule, firmly grounded in the economic analysis, would allow the reduction of Italy's outstanding stock of debt without requiring the strict adherence to the 3 per cent criterion for deficit/GDP ratio, as prescribed by SGP (Stability and Growth Pact). We perform a forecasting exercise under five alternative scenarios and analyse the details of a structural debt reduction strategy with alternative yearly step.     

‘An Incomplete Contract Approach to Eurozone Fiscal Governance’ – Commitment vs. Flexibility

In this paper, we take an incomplete contract approach to Eurozone Fiscal Governance between the European Commission (EC) and any heavily debt member state, Greece in particular. Incomplete contract approach makes possible to put a long process of Eurozone Fiscal Governance into an extensive form game in which a renegotiation procedure is incorporated. We theoretically reveal the conflict of interests between the EC (Germany) and Greece over the Greek debt repayment plan proposed in 2015. We show that the Greek’s position is consistent with incomplete contract theory, but that the EC (Germany) does not allow the renegotiation for restructuring for growth-oriented debt repayment program proposed by the Greek government because the EC (Germany) judges that the commitment effect (on fiscal austerity) is greater than the flexibility one (pro-growth effect). This will undoubtedly provide a novel and interesting approach to Eurozone Fiscal Governance.     

Macroeconomic effects of structural reforms and fiscal consolidations: Trade-offs and complementarities

This paper studies the impact of product and labour market structural reforms and the effects of their joint implementation with alternative debt consolidation strategies. The set-up is a dynamic general equilibrium model calibrated for the Greek economy. The results show that structural reforms produce important long-run GDP gains that materialize earlier, the faster the reforms are implemented. When implemented jointly with fiscal consolidations, structural reforms may amplify the short-run costs of fiscal tightening. The GDP dynamics depend on the fiscal instrument used for public debt consolidation. In the long run, however, there are complementarity gains irrespective of the fiscal instrument used.     

外部供需冲击视角下的东亚货币合作可行性研究

区域货币合作在维护区域金融稳定、促进区域经济发展方面具有不可替代的作用。欧洲主权债务危机爆发后,人们对东亚能否继续进行货币合作产生了疑问,有必要结合欧债危机产生的新情况、新问题,从新的视角探讨东亚货币合作的可行性。文章从供给与需求两方面的经济结构冲击对称性视角,对东亚10个经济体之间的冲击相关系数、冲击规模与调整速度进行了实证分析,证实了东亚区域不同经济体之间存在着不同的对称性,具有双边和次区域货币合作的经济基础。同时文章提出东亚区域未来货币合作的形式、实现路径和风险防范措施。     

The dynamics of Greek public debt – evidence from simultaneous and structural VAR models

The goal of the present article was to investigate not only the dynamics of the Greek public debt, but also the appropriate measures required for achieving fiscal consolidation. The empirical estimation is carried out using a macroeconomic data set spanning the period 1980–2008 and both the three-stage least squares (3SLS) methodological approach on a theoretical model and the structural VAR methodology to perform forecast tests and to calibrate the future paths of the public debt variable up to 2020. The results suggest that only a restrictive fiscal policy that simultaneously increases government revenues and reduces government expenditure could permit the country to achieve debt sustainability. The results also suggest that debt sustainability can be achieved faster when tax revenue policies are intensified. The results are expected to have important implications to policymakers for designing effective macroeconomic policy in terms of achieving sustainable levels of public debt.     

Holding out for a better deal: Brinkmanship in the Greek bailout negotiations

Greece and its creditors concluded negotiations over a third bailout by signing a Memorandum of Understanding on 19 August 2015. The dominant view among most economic policy analysts and commentators seems to be that the actions of the Greek government in the months before the deal had been erratic and lacked coordination. In this paper we argue instead that the decisions of the Greek leaders, including asking the voters to reject the earlier terms demanded by the creditors in a referendum, can be rationally explained by the logic of brinkmanship. We develop a game-theoretic model to show that the actions of the Greek government are consistent with a strategy aimed at getting a better bailout deal.     

A Political Economy Application of the “Tragedy of the Anticommons”: The Greek Government Debt Crisis

The tragedy of the anticommons unfolds when separate social agents—be they private owners of a property who intend to use the property for their own economic benefit or political actors who pursue their political objectives—do not hold effective rights to use their economic or political power for their own purposes without consent of the other players of the economic or political game. I shall discuss the Greek government debt crisis and the Eurozone countries’ policies toward Greece within the analytical framework of the tragedy of the anticommons in this paper. I do not intend to dig deep into the structure and long-term trends of public and private finances in Greece. I shall only show that the successive bail-out programs of the Eurozone countries were doomed to fail because of these countries’ competitive and non-cooperative approach to the Greek financial problems. I shall also show that a coordinating agency, say the IMF, can foster the coordinated outcome only under strict informational conditions.     

“Twin deficits” in Greece: in search of causality

Abstract:

The paper discusses the trajectories of the Greek public deficit and sovereign debt between 1980 and 2010 and its connection to the political and economic environment of the same period. We pay special attention to the causality between the public and the external deficits in the period after 1995, the post–Maastricht Treaty period. We argue that, due to the European monetary unification process and the adoption of the common currency, causality ran from the external deficit to the public deficit. This hypothesis is tested econometrically using both Granger causality and cointegration analyses. We find empirical support for this hypothesis.     

要素与资产价格重估背景下当前非典型通胀的表现及治理

当前我国经济转型和市场化进程,以及中国近三十年来的发展战略是催生当前通胀发生的体制背景.此次通胀的发生有着"混合型通货膨胀"的特征,体现为货币过剩和结构性的非典型通胀.要理解这种特征事实,需要深入分析当前我国经济增长和转型的体制背景,以及宏观经济变量的互动机制.此类通胀治理问题的关键在于有效的政策搭配.     

The price effects of joining the euro: modelling the Greek experience using non-linear price-adjustment models

The widely-held hypothesis that accession to the EMU has caused a structural increase in Greek consumer prices is tested. No econometric evidence of such an effect is found. There is strong evidence of (a) multiple structural breaks in the process driving Greek equilibrium consumer prices and (b) non-linear price adjustment. The findings explain the post-EMU accession acceleration in Greek prices as normal, equilibrium-restoring behaviour. They also have important policy implications for the countries planning to join the euro in the foreseeable future.     

稳增长和防风险双底线下的宏观经济*——2016年宏观经济形势分析与2017年预测

2016年经济呈现出短期底部企稳与泡沫聚集的特点。在潜在增长平台下移、周期性、结构性以及趋势性因素共同作用的背景下,经济下行压力依然巨大,2017年宏观经济仍将持续筑底。而底部运行的深度和持续的长度取决于世界经济复苏程度、中国经济潜在增长水平、新产业新动能培育、房地产周期调整、政治经济周期波动以及对潜在风险的化解与对策等多种因素。与此同时,在“债务—投资”驱动模式下,我国债务规模快速攀升,债务水平已经积累至相当程度,债务的结构性风险突出,尤其是广义政府债务水平超出国际警戒线。而中国经济目前存在的深层次问题本质上大多与债务风险密切相关。比如资产泡沫的聚集,实际上是“债务—投资”驱动模式中投放的大量货币在股市、债市以及房地产等领域的伺机流动。债务风险有可能是引发中国经济爆发危机的关键点。从目前情况来看,中国具备防范危机的实力,但是对于可能引发危机的潜在因素必须重视。一方面,树立正确的危机观,不惧怕危机,建立危机应急机制。另一方面,在债务风险演变至债务危机前,防患于未然,建立风险缓释机制。     

Fiscal policy reforms in general equilibrium: The case of Greece

This paper quantifies the macroeconomic and welfare implications of (i) changes in the tax-spending mix and (ii) debt consolidation policies. The setup is a neoclassical growth model augmented with a relatively rich public sector. The model is calibrated to the Greek economy. The results suggest that, if the goal of fiscal policy is to stimulate the economy and increase welfare by changing the tax mix, then it should decrease the tax rate on labour income and increase the consumption tax rate. While higher public investment spending is good for the economy, it is lower public consumption spending that is found to be expansionary. The results also suggest that both tax- and expenditure-based debt consolidation policies lead to worse economic activity in the short run, but they have strong beneficial effects in the medium and long run when the consolidation period finishes.