Greek Endgame : From Austerity to Growth or Grexit by Nicos Christodoulakis

41u8QNWhHvL._SY291_BO1204203200_QL40_.jpg Author Nicos Christodoulakis
Isbn 9781783485246
File size 8.2MB
Year 2015
Pages 202
Language English
File format PDF
Category economics


Greek Endgame Greek Endgame From Austerity to Growth or Grexit Nicos Christodoulakis London • New York Published by Rowman & Littlefield International, Ltd. Unit A, Whitacre Mews, 26-34 Stannary Street, London SE11 4AB Rowman & Littlefield International, Ltd. is an affiliate of Rowman & Littlefield 4501 Forbes Boulevard, Suite 200, Lanham, Maryland 20706, USA With additional offices in Boulder, New York, Toronto (Canada), and Plymouth (UK) Copyright © 2015 by Nicos Christodoulakis All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without written permission from the publisher, except by a reviewer who may quote passages in a review. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN: HB 978-1-78348-523-9 PB 978-1-78348-524-6 Library of Congress Cataloging-in-Publication Data Christodoulakis, N. M. (Nicos M.), author. Greek endgame : from austerity to growth or Grexit / Nicos Christodoulakis.   pages cm ISBN 978-1-78348-523-9 (cloth : alk. paper) — ISBN 978-1-78348-524-6 (pbk. : alk. paper) — ISBN 978-1-78348-525-3 (electronic) 1. Debts, External—Greece. 2. Debts, Public—Greece. 3. Financial crises—Greece. 4. Greece—Economic policy—1974–5. Greece—Economic conditions—1974–6. European Union—Greece. I. Title. HJ8673.C47 2015 330.9495—dc23 2015025863 ∞ ™ The paper used in this publication meets the minimum requirements of American National Standard for Information Sciences—Permanence of Paper for Printed Library Materials, ANSI/NISO Z39.48-1992. Printed in the United States of America Contents List of Illustrations vii Glossaryix Calendar of Main Crisis-Related Events xi Prologuexv Introduction  1 PART I: THE RUN-UP TO THE CRISIS 9  1 Origins: How Greece Was Engulfed in the Crisis 11  2 Complacency: Was the 2010 Bailout Really Inevitable? 25  3 Reinventing the Past: Should Greece Have Joined the Euro? 31 PART II: THE BAILOUT YEARS 41  4 Getting It Wrong: An Appraisal of the Austerity Programme 43  5 The Vicious Circle: Snowballs, Haircuts and Hazards 63 PART III: THE ILLUSIONS 71  6 Change Currency? Illusions and Miscalculations 73  7 History Lessons: The Collapse in Interwar Greece  83  8 Modern Lessons: Default and Collapse in Argentina 93 PART IV: THE ESCAPE 105  9 Getting It Right: End Recession and Stabilize Public Debt 107 10 A Road Map for Growth: Some Key Fiscal Reforms  127 v vi Contents 11 The Feasible Prosperity: A New Contract for Greece 143 12 The Political Economy of Drachma: Lower Wages, More Inequalities 155 Epilogue: After the Left’s Victory in Greece 169 Postscript175 Relevant Books and Research by the Author 177 References179 Index183 List of Illustrations FIGURES Figure 0.1 Real GDP Index, Base 2007=100 3 Figure 0.2 Public and External Balances 4 Figure 1.1 Greek Public Debt as Percent of GDP 12 Figure 1.2 Current Account as Percent of GDP 13 Figure 1.3 Primary Public Expenditure and Net Total Revenues as Percent of GDP 14 Figure 1.4 The Wage Share in the Greek Economy 15 Figure 1.5 Competitiveness Indicators Based on Unit Labour Cost 22 Figure 1.6 The Global Competitiveness Index 23 Figure 3.1 Comparing Greece with Other Non-Euro EU Economies 38 Figure 4.1 Pre- and Post-crisis Growth Rates and Debt Burden in the Eurozone 46 Figure 4.2 Updating Projections: From Optimism to Harsh Reality 50 Figure 4.3 Key Rates of, and Revenues From, VAT 52 Figure 4.4 Average Income Statements by Wagers and Pensioners 53 Figure 4.5 The Collapse of Income Tax Revenues in 2011 54 Figure 4.6 World Bank Governance Indicators 58 Figure 5.1 The Snowball Effect in Greece and the Euro Area 64 Figure 5.2 Greek Public Debt, Actual and Counterfactuals 65 Figure 5.3 The Fall of Investment in Greece, by Sector of Activity 68 Figure 5.4 Gross Fixed Investment and the Unemployment Rate 69 Figure 8.1 Hourly Wage Rates in Argentina, in Purchasing Power Terms 97 Figure 8.2 Inequality Index in Argentina, by Income Deciles 99 Figure 8.3 Total Investment Shares in Argentina and Greece 101 vii viii List of Illustrations Figure 8.4 Bank Deposits in Greek banks 102 Figure 9.1 Greek Public Debt 2014–2020, Under Alternative Assumptions111 Figure 9.2 The Changing Landscape in the Labour Market 124 TABLES Table 0.1 Election Results in Greece 2007–2015 2 Table 4.1 Comparing Pre-crisis and Post-crisis Indicators 59 Table 9.1 Debt Projections by the European Commission, 2012 108 Table 9.2 Revised Debt Projections by the European Commission, 2013109 Table 9.3 Restoring Investment Activity in Greece 115 Table 9.4 Required Investments in Greece, by Sector and Source 116 Glossary ARS BPS CPI EC ECB EEC EFSF EMU Entry parity ERM ESM EU Euribor Eurogroup Eurostat FDI Forex FYROM GDP GES Haircut HFSF HRADF IMF IPO MEFP The currency code for Argentinean Peso; the symbol is $. The currency code for British Pound Sterling Consumer Price Index European Commission European Central Bank European Economic Community European Financial Stability Facility Economic and Monetary Union The exchange rate of joining the euro, set at 340.5 drachma/€. Exchange Rate Mechanism European Stability Mechanism European Union Euro Interbank Offered Rate Council of Finance Ministers of the Eurozone countries European Statistical Service Foreign Direct Investment Foreign exchange market Former Yugoslav Republic of Macedonia Gross Domestic Product Gold Exchange Standard Debt reduction by cutting the nominal value of issued bonds Hellenic Financial Stability Fund (ΤΧΣ) Hellenic Republic Asset Development Fund (ΤΑΙΠΕΔ) International Monetary Fund Initial Public Offering Memorandum of Economic and Financial Policies ix x Glossary Memorandum MFAFA OMT OSI PSI PUC QE Troika ULC USD VAT WEO The programme of Specific Economic Policy Conditionality Master Financial Assistance Facility Agreement Open Market Transactions Official Sector Involvement Private Sector Involvement Public Utility Corporation (ΔΕΚΟ) Quantitative Easing (by the Central Bank) The representatives of IMF, European Central Bank and the Eurogroup Unit Labour Cost The currency code for US Dollar Value Added Tax (ΦΠΑ) World Economic Outlook, IMF publication Calendar of Main Crisis-Related Events August 2007: A snap election is called by the incumbent New Democracy Party (centre-right) on the grounds that public finances are getting out of control and a new consolidation policy is needed. Shortly after the announcement in mid-August, devastating wildfires claim dozens of human lives and cause extensive environmental damage. The government pledges compensations and a relief fund is set up. September 2007: Elections are won by the incumbent government, albeit its majority is slashed. No special measures are taken. January 2008: The international credit environment deteriorates, but the government announces that the Greek economy is sufficiently fortressed against external shocks. Emergency fiscal measures are ruled out. September 2008: The global economic crisis erupts, but Greece does not suffer any serious recession at first. Greek banks are capitalized by €5 billion. The government says that this is only a precautionary measure. December 2008: Serious riots in Athens and other cities in Greece after a youth is shot dead by police. Clashes last for two weeks and are extensively covered by world media; several of them mistook the events as being a reaction to the crisis and interpreted them as a prelude to similar protests elsewhere. A government reshuffle in January 2009 includes the Ministry of Finance. May 2009: In the European elections, the incumbent party loses by landslide and soon opts for yet another snap general election, just two years after the xi xii Calendar of Main Crisis-Related Events previous one. Economic policy is virtually abandoned and public deficit gets out of control. Wildfires occur again in the summer. October 2009: The socialist party wins the elections by landslide, and, immediately afterwards, the government announces that the public deficit is running above 11% of GDP versus an initial target of 3.7%. The figure is later finalized at 15.4% of GDP. December 2009: The 2010 Government Budget Plan endorses several preelectoral promises. Rating agencies Fitch, Moody’s and Standard & Poor serially downgrade Greece, but the government remains hesitant in coping with the looming crisis. January 2010: After taking part in the World Economic Forum at Davos, Switzerland, the Greek government talks increasingly in favour of inviting IMF to Greece. Spreads on Greek bonds are rising, but the government insists on issuing bonds with long maturities instead of short-term ones, whose costs remain low, thanks to the ECB liquidity facilities. April–May 2010: Greece seeks a bailout. Following the request, a joint IMF/ Eurozone/ECB mission visits Greece and the First Memorandum of Economic and Financial Policies is signed. A financing package of €110 billion is disbursed. Clashes erupt in Athens and three people are killed when demonstrators attack a small private bank. June 2011: The Memorandum is extended by the medium-term fiscal-adjustment strategy. It aims at primary surpluses and privatizations of up to €50 billion to control the dynamics of debt. September 2011: The government breaks talks with Troika members. To return, they demand the introduction of a special property levy payable together with the electricity bill. Wide protests follow and many refuse to pay. February 2012: The Second Memorandum of Economic and Financial Policies is ratified by Greek Parliament amid serious clashes in Athens and party splits. The programme provides for financial assistance of €164.5 billion until the end of 2014. March 2012: The debt reduction (‘haircut’) is completed. Greek banks are recapitalized through the Greek Financial Stability Fund, which becomes the major shareholder, while the capital injection is recorded on the Greek public debt. Calendar of Main Crisis-Related Events xiii May–June 2012: Two successive general elections are held after the first fails to produce a governing majority. In June, a coalition government is formed by the conservative, socialist and Democratic Left parties. The left-wing opposition rises; the far-right party (‘Golden Dawn’) is elected to Parliament. December 2012: The Memorandum is amended. Its main aim is to overhaul the tax system and introduce a new property tax. June–September 2013: The government shuts down the National Television and the Democratic Left party leaves the coalition. Following the murder of an activist, the leadership of the far-right party is arrested on conspiracy charges. April 2014: Four years after the bailout, Greece holds its first government bond auction. Part of the primary surplus is distributed to selected public sector groups, mainly the police and armed forces personnel. The property tax is introduced to replace the special property levy. The government is heavily criticized for mistakes and excessiveness. May 2014: In the European elections, the Radical Left coalition (Syriza) comes on top. The far-right party gets nearly 10% of the vote. September 2014: The coalition government pledges that it is about to complete the programme and tap the markets. Meetings with the Troika are not productive and new austerity measures are demanded. Debt sustainability is in doubt and proposals for rescheduling and/or reduction appear. Wide protests on the property tax force the government to allow payments in instalments. December 2014: Second Amendment of the Second Memorandum. The government asks for a two-month extension and access to the precautionary credit line facility by the ESM. An early presidential election (normally due in May 2015) is inconclusive and new general elections are announced. Talks with creditors stall. January 2015: The Syriza party wins the general election with the mandate to abolish the Memorandum and keep the country in the Eurozone. A coalition government is formed with the Eurosceptic nationalist party of ‘Independent Greeks’. Amid protracted negotiations between Greece and the Euro group, Grexit is viewed as increasingly likely. Prologue The dilemma of a Greek exit from the Eurozone (Grexit) acquired a new momentum both in Greece and abroad after the Radical Left coalition (Syriza) won the January 2015 general election and formed a government with a Eurosceptic nationalist party. Even though before the elections the party had pledged its unequivocal endorsement of the euro, the government has since sought to relax the existing policy mix, and this led to protracted disagreements and negotiations with the European lenders and the IMF. It was only a matter of time before the Grexit scenario returned full-scale to the fore, to be discussed as the likely outcome of Greece’s failure to reach a new agreement. At the time of completing this book, the debate was fervent and all options were open. Domestic public opinion appeared to be in favour of keeping the common currency, but several analysts openly suggested that the political and economic obstacles lying ahead were insurmountable and would eventually lead to the unthinkable. At the same time, several international commentators—through a frenzy of media coverage—either openly supported or, at least, entertained the idea of a return to the historical currency of the drachma. For all these reasons, it is imperative to rekindle the debate regarding the comparative advantages of the euro and the drachma for the country. First and foremost, to separate the effects of economic policy implemented in Greece from the constraints actually imposed by the single currency; second, to demonstrate that the euro remains by far the most beneficial option for Greece, as compared to an unstable and deeply devalued currency that may replace it. Escaping from the current recession and unemployment requires the implementation of another policy mix within the Eurozone, and not another currency by leaving it. *** xv xvi Prologue This volume is based on books that I have published in Greece and on my numerous research articles published in international journals, plus new material and policy assessment. The links between current text and previous work is delineated in the Appendix. Unavoidably, in a book focusing on a situation that potentially may change rapidly as current affairs and political vicissitudes in Greece are still unfolding, there are aspects that may be superseded by events during the process of its preparation. As the purpose of this work is to give the reader a clear background to the current economic situation in Greece and to provide the justification for certain approaches to tackling the problem, it is hoped that any such events may render the work useful in terms of anticipating what might happen with certain policy decisions or could have been avoided with others. The book contains many economic facts that some readers may find tedious or abstruse. However, they are indispensable because this is exactly what differentiates this text from other descriptions, which gloss over these facts. In order to provide for easier reading, economic tables and charts have been set apart from the main text, while all notes appear as endnotes. Although the analysis is based on the best available statistical data, responsibility for processing and evaluating them lies solely with the author. In preparing the book, I have greatly benefited from the comments and suggestions by two anonymous referees on an earlier plan of the book, and the continuous support and help by Alison Howson. I am deeply thankful to Nicos Roussos for translating substantial parts from two books that I had published in Greek, and also to Anastasia Tsadaris for editorial assistance. Naturally, I remain solely responsible for any errors and omissions that may still exist in the text. N.C. Athens, May 2015 Introduction THE SPECTRE OF GREXIT In May 2010 and after months of credit shortages and looming repayments of public debt, Greece finally sought a bailout agreement with the European Union (EU), International Monetary Fund (IMF) and European Central Bank (ECB), henceforth code named as ‘Troika’. In return for the bailout funds, Greece accepted the Memorandum of Understanding on Specific Economic Policy Conditionality (the Memorandum), a blueprint with specific policies to be implemented in order to reduce indebtedness and promote growth. Things, however, did not go as smoothly as planned nor as initially expected. The Unforeseen Transformation of Greece The dogged implementation of austerity programmes in Greece in exchange for the bailout in May 2010 has brought about tectonic shifts, not only in the economy but also in the political structures and social dynamics, even in the geopolitical perception of the country on the global stage. Table 0.1 demonstrates the outcome of the national and European elections held in Greece since 2007. The two mainstream parties that were alternating in power since the restoration of democracy in 1974 saw their influence dither away from around 80% of the vote to little more than 30%. Their ex-supporters either followed splinter groups or voted en masse for the Radical Left coalition (Syriza) that was catapulted from just 5% of the vote in 2007 to over 36% in 2015, forming a government with radical left-wing leanings for the first time in Greek history. An ominous outcome was the electoral consolidation of ‘Golden Dawn’, the far-right party that managed to rise from non-existence to the third position in the Greek Parliament. 1 2 Introduction Table 0.1  Election Results in Greece 2007–2015 N2007 Sep Political Party ND (centre-right) Pasok (centre-left) KKE (communist) Syriza (radical left) Laos (rightwing) XA (far right) E2009 May N2009 Oct N2012 May N2012 Jun E2014 May N2015 Jan 41.84% 32.30% 33.47% 18.85% 29.66% 22.72% 27.81% 38.10% 36.65% 43.92% 13.18% 12.28% 8.02% 4.68% 4.50% 6.11% 5.47% 8.15% 8.35% 7.54% 8.48% 5.04% 4.70% 4.60% 16.79% 3.80% 7.15% 5.63% 2.89% 1.58% 2.69% 1.03% 0.03% 0.46% 0.29% 6.97% 6.92% 9.39% 6.28% 10.62% 7.51% 3.46% 4.75% 6.11% 6.25% 1.20% 0.49% 6.61% 6.05% 26.89% 26.56% 36.34% Splinter/new Anel (ND & Laos) Demar (from Syriza) Potami (Pasok & Demar) Drasi—Xana (from ND) Kidiso (from Pasok) 0.76 % 3.95% 1.59% 0.91% 2.46% National (N) and European elections (E). Source: Ministry for the Interior, Greece. Party acronyms: ND (New Democracy); Pasok (Panhellenic Socialist Movement); KKE (Communist Party of Greece); Syriza (Coalition of Radical Left); Laos (People’s Orthodox Alert); XA (Golden Dawn); Anel (Independent Greeks); Demar (Democratic Left); Potami (River); Drasi—Xana (Action—Construction Again); Kidiso (Movement of Democratic Socialism). Note: The origins of splinter parties are attributed by the author. The background of these developments is the deep economic downturn. The end result of the austerity programme has been the largest depression experienced by any other European country during the twentieth century in non-war years. One of the consequences of the adjustment failure has been the emergence of a potential Grexit, that is to say Greece exiting the common currency, defaulting on its debt and re-establishing competitiveness by a drastic devaluation of its currency. Very few people were concerned about such potential ramifications at the beginning. The policies that began to be implemented under the aegis of the Troika aimed at dealing with a huge fiscal and a large external deficit, in order to control the ballooning debt and enable the country’s swift return to international markets. The implementation horizon was brief and benefits were expected to be evident quickly, whereas any adverse consequences would be limited and temporary. Introduction 3 When the first stage of the adjustment programme failed, the policy was neither revised nor was the intensity of its implementation called into question. Instead, amidst a pandemonium of political bickering and social unrest, the first programme was replaced by a second one in 2011, which also proved insufficient to get the country out of the crisis. The new measures were identical to those of the first stage in terms of character, style and outcome: namely, across-the-board wage cuts, a new wave of taxes, an abysmal failure to privatize public assets and a systematic aversion for any real change in the public sector. Apart from other reasons, the key factor was that, despite the fiscal adjustment, the economy did not come out of recession nor was the debt burden harnessed. On the contrary, the economy, after contracting by a further −4% in 2013, barely changed in 2014 and showed no sign of a systematic return to growth. As depicted in Figure 0.1, Greece suffered from a recession that was much harder than that experienced by the other economies of Eurozone’s periphery during their own austerity programmes. Some Success, Too Late Success came late but was still limited in scope and far from being robust. Most importantly, the performance of the Greek economy in 2014 checked somewhat Europe’s censure of Greece as a country in permanent failure (see Figure 0.2). Based on the latest data for 2014, Greece is no longer the worst fiscal performer in the Eurozone: government deficit fell at 3.5% of GDP, Figure 0.1  Real GDP Index, Base 2007=100. Source: AMECO Eurostat, rebased. (Figures for 2014 are estimates).

Author Nicos Christodoulakis Isbn 9781783485246 File size 8.2MB Year 2015 Pages 202 Language English File format PDF Category Economics Book Description: FacebookTwitterGoogle+TumblrDiggMySpaceShare Written by a former Greek Minister of Finance, this book analyses the past, present and future of the Greek Crisis.     Download (8.2MB) The Limits Of Stabilization: Infrastructure, Public Deficits And Growth In Latin America A Diet Of Austerity: Class, Food And Climate Change Against The Troika: Crisis And Austerity In The Eurozone Selling Our Death Masks: Cash-for-gold In The Age Of Austerity Elites On Trial Load more posts

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