Political Economy Perspectives on the Greek Crisis (eBook)

Ioannis Bournakis is  Senior Lecturer in Economics at Middlesex University, UK. He has an MSc in Economics and Econometrics from the University of Manchester, UK and a PhD in Economics from the University of Kent, UK. His research interests are in the fields of international trade, economic growth and applied macroeconomics. Christopher Tsoukis is Senior Lecturer in Economics at Keele University, UK, specialising in macroeconomics. His research interests include behavioural and social macroeconomics, fiscal policy, political economy and the economy of Greece. Dimitris K. Christopoulos is Professor of Economics at Panteion University in Athens, Greece. Dimitris has a BA in Economics from Athens University of Economics and Business, and a PhD from Panteion University. His main research interests are in the areas of economic growth, economic development, microeconomics and non-linear models. Theodore Palivos is Professor of Economics at Athens University of Economics and Business and Senior Fellow at the Rimini Center for Economic Analysis. He has a PhD from Penn State University, US. His current research interests are in the areas of labour economics, macroeconomics, and public economics.

Contents 5
Editors and Contributors 8
List of Figures 18
List of Tables 21
Part I Introduction and PoliticalEconomy Approaches 23
1 Introduction 24
1.1Introduction 24
1.2The Greek Crisis in the Context of Wider Eurozone Developments 26
1.3Summary Indicators of the Greek Crisis 27
1.4Looking for Culprits: What Went Wrong 29
1.5A Chronology of the Crisis 34
1.6Current Outlook and Prospects 39
1.7Taking Stock 41
1.8A Proposal 48
1.9Summary of the Contributions to this Volume 49
References 57
2 The Eurozone Crisis: A Near-Perfect Case of Mismanagement 62
2.1Introduction 62
2.2Before the Crisis: Fiscal Indiscipline 64
2.3Greece: The Mother of the Eurozone Crisis 67
2.4Contagion: Muddling-Through 72
2.5Turnaround: The ECB Against Governments 75
2.6The Public Debt Legacy 77
2.7Conclusions 78
References 79
3 The Elusive Promise of Structural Reform 81
3.1Structural Reforms: The Concept 81
3.2Partial Amnesia 83
3.3What Triggers Takeoffs? 85
3.4Maximum Gain for Minimum Pain 87
3.5Pay Now, Pay Later 89
4 The Responsibility of the EU 91
4.1Introduction 91
4.2Technical Issues 96
4.3Germany: Rechtstaat Greece: Unrechtstaat
4.4Social Europe? 102
4.5Who Was Being Rescued? 105
4.6Conclusion: Nothing Has Been Achieved 106
References 110
5 German Macroeconomic Thought and Its Effects 112
5.1German Macroeconomic Thought 113
5.2German Macroeconomic Thinking and European Monetary Integration 116
5.3German Policy Thinking and the Euro Crisis 120
5.3.1Competitiveness and Growth: Which Way to Recovery for Greece? 120
5.3.2ECB Vs German Policy Thinking in the Euro Crisis 124
5.3.3IMF vs German Policy Thinking in the Euro Crisis 126
5.4Concluding Comments 129
References 132
6 Seven Years of Austerity and the Greek Dra(ch)ma: Three Economists’ Views and a Comment 136
6.1Introduction 136
6.1.1The Boom 137
6.1.2The Bust 138
6.2Three Economists’ Views 140
6.2.1Paul de Grauwe (on the Eurozone Crisis) 140
6.2.1.1 Debtors and Creditors 140
6.2.1.2 Relative Unit Labour Costs 141
6.2.1.3 Debt Ratios 141
6.2.1.4 Design Failures of the Eurozone 142
6.2.1.5 Single Interest Rate 142
6.2.1.6 Lender of Last Resort 143
6.2.1.7 Policy Implications 143
6.2.2Paul Krugman (on the Greek Issue) 144
6.2.2.1 From Problems and Troubles to a Catastrophe 144
6.2.3Joseph E. Stiglitz (on the Greek Issue) 146
6.2.3.1 The Austerity Programme 146
6.2.3.2 Criticisms 147
6.2.3.3 Negative Consequences of the Programme 150
6.2.3.4 What Has to Be Done? 150
6.2.3.5 GREXIT 151
6.2.3.6 Parallel Currency (and the Similarities with Argentina) 152
6.3A Comment: The Greek Economy After Five Years of Austerity 152
6.3.1Macroeconomic Indicators 153
6.3.1.1 Monetary Aggregates and Inflation Rates 153
6.3.1.2 Unemployment Rates 153
6.3.1.3 Maastricht Criterion Interest Rates 154
6.3.1.4 Athens Stock Exchange (ASE), Private Sector Credit Flow and Foreign Direct Investment (FDI) 154
6.3.1.5 Healthcare Access, Poverty Risks, Suicides and Birth Rates 154
6.4Conclusions 155
Appendix Introduction 156
A Comment: The Greek Economy after Five Years of Austerity 161
Conclusions 169
References 171
Part II Debt, Austerity and Credit Ratings 174
7 A Macroeconomic Perspective on the Greek Debt Crisis 175
7.1Introduction: The Greek Debt Crisis 175
7.2How Did the Greek Debt Crisis Arise? 176
7.3What Is Needed to Avoid Default? 184
7.4Broader Considerations 187
7.5Concluding Comments 191
References 193
8 On the Role of the Credit Rating Agencies in the Euro Zone Crisis 194
8.1Introduction 194
8.2Literature Review 196
8.3Overview of the Rating Systems 200
8.4Explanatory Variables 201
8.5Methodology 203
8.6Results 204
8.7Discussion of Results and Conclusions 206
Appendix 213
References 218
9 The Greek Great Depression: A General Equilibrium Study of its Drivers 221
9.1Introduction 221
9.2A DSGE Model 224
9.2.1Description of the Model 224
9.2.2Numerical Solution of the Model 225
9.3Simulations 227
9.3.1Effects of the Fiscal Austerity Mix as Adopted in Practice 227
9.3.2Effects of the Deterioration in Institutional Quality 230
9.4Conclusions, Discussion, and Extensions 233
References 235
10 The Limits of Austerity: The Fiscal Multiplier and the ‘Debt Laffer Curve’ 238
10.1Introduction 238
10.2Debt Sustainability and Macroeconomic Structure: The State of Play 241
10.3A ‘Maximum Revenue’ Approach 244
10.3.1A Sustainability Criterion 244
10.3.2Debt Dynamics, Debt Traps and the Debt Laffer Curve 246
10.3.3A Variant Model: A Fiscal Shock Having Effects of a Parametric Persistence 247
10.3.4Empirical Estimates of the Fiscal Multiplier and Implications 249
10.4The Supply Side, Structural Reforms and Conditionality 252
10.5Conclusions and Policy Implications 256
References 259
11 Fiscal Consolidation Policies and the Underground Economy: The Case of Greece 263
11.1Introduction 263
11.2Predictions of the Model 266
11.2.1Results 267
11.2.1.1 Economy Without Underground Activities 267
11.2.1.2 Economy with Underground Activities 268
11.2.1.3 Comparison 269
11.3Policy Evaluation 272
11.4Conclusions 273
11.5Appendix: Equations of the Model 273
11.5.1Labour Markets 273
11.5.2Households 274
11.5.3Production 276
11.5.3.1 Intermediate Goods Firms 276
11.5.3.2 Retailers 278
11.5.4Government 279
11.5.5Closing the Model 280
11.5.5.1 Monetary Policy 280
11.5.5.2 Goods Markets 281
11.5.5.3 Bargaining Over Wages 281
References 282
Part III Sectoral Views 284
12 Output and Unemployment: Estimating Okun’s Law for Greece 285
12.1Introduction 285
12.2Brief Overview of the Okun’s Law Literature 288
12.3Methodology 290
12.4Data and Empirical Results 293
12.5Concluding Remarks 297
References 298
13 On the Determinants of NPLs: Lessons from Greece 300
13.1Introduction 300
13.2The Model 303
13.3Empirical Analysis 306
13.3.1The Data 307
13.3.2Estimates 312
13.4Conclusion 318
References 319
14 Who Exports High-Quality Manufacturing Products? Some Empirical Regularities From Greek Exporting Firms 321
14.1Introduction 321
14.2Estimating the Quality of Greek Exports 324
14.2.1Related Empirical Literature 324
14.2.2The Empirical Model for the Quality of Greek Exports 326
14.2.3Trade Data 329
14.2.4Quality Estimates 329
14.3Linking Product Quality with Firm Characteristics 332
14.3.1Data and Empirical Specification 332
14.4Results 334
14.5Conclusions 339
References 341
15 Spatial Structure and Spatial Dynamics of Regional Incomes in Greece 344
15.1Introduction 344
15.2Regional Disparities and Spatial Association: Aggregate Patterns and Evolution Over Time 346
15.3Spatial-Temporal Dynamics 351
15.3.1Persistence of Local Spatial Association 352
15.3.2Principal Components of Local Spatial Association 355
15.4Discussion and Conclusions 359
References 364
16 Greece’s Competitiveness: A Survey and Concluding Remarks 368
16.1Introduction 368
16.2Export Patterns and Specialisation 369
16.3Competitiveness: Price Versus Non-Price Factors 372
16.3.1Competitiveness: A Definition 373
16.3.2Understanding the Drivers of Export Activity 375
16.4Concluding Thoughts: Past Mistakes, the Reform Agenda and the Road Ahead 380
16.4.1Allocation of EU Structural Funds in Greece 381
16.4.2EU and Structural Asymmetries 382
16.4.3The Road Ahead 384
References 388
Index 392