Dec 10 2018

How to make the Greek economy rise again (and debt to fall)

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The Third Program of fiscal consolidation and bailout funding for Greece by European institutions and the IMF has been completed last August, eight years after the debt-crisis first erupted. Despite the jubilant mood adopted by the Greek Government to celebrate the end of “policy dictation from abroad” and a sense of cautious relief expressed by the European authorities, major problems that have precipitated the activation of the Programs still reign in. Not that Greece entirely missed the targets of fiscal tightening: in fact, the country has achieved one of the largest fiscal containment by turning a horrendous primary deficit of around -10% of GDP in 2009 into a strong surplus of 4% of GDP in 2018, much higher than the tiny average of 1.2% of GDP in the Euro Area as a whole; or the taming of the huge external deficit from around -15% of GDP in 2007, back to balance last year.

My concern is that these two great achievements are far from being robust and sustainable, unless a major restructuring of the economy is put forward. Take for example, the external balance. Its containment mainly came as a result of reduced imports thanks to the contraction of aggregate demand, while exports rose only marginally. As soon as demand recovers, trade imbalances are bound to re-appear. Or consider the fiscal target. Currently the Government has – unwisely – agreed to accumulate primary surpluses to the tune of 3.50% of GDP for 2018-2022, 2.50% until 2029 and 2% thereafter, a much tighter consolidation than followed in other Euro Area countries. Such an ambitious target is harmful to the economy that is still staggering after so many years in recession, but is also highly uncertain as it is based on hyper-taxation. Most analysts predict that Greece will remain trapped in anemic growth, slightly over 1%, for a long time.

Hyper-taxed and under growing, the Greek economy will prove strongly resistant to market reforms and continue to feel the heavy burden of indebtedness: last year public debt ended up at 179% of GDP, a huge deterioration relative to the 127% level that precipitated the crisis in 2010. Together with colleagues Milton Nektarios and Harry Theocharis, we set out to investigate how a credible and lasting solution is established in such way that spurns lasting growth and, therefore, facilitates the servicing of debt, encourages employment and helps the ailing social security system in Greece. Our analysis and proposals are described in ‘Restarting the Greek Economy: How by lowering primary surpluses, insurance contributions and the tax burden, Greece can lift growth, raise employment and stabilize public debt’.

Our alternative is based on a new policy mix with primary surpluses lowered down to 1.50% of GDP, a target closer to the Euro Area practices, while the rest 2% of GDP is allocated to finance investment in infrastructure, new technologies and export-led growth. Higher growth makes debt servicing all the more sustainable and, at the same time, encourages reforms in taxation and social insurance.

The reform in the social insurance relies on the complete annulment of the employees’ contribution rate and the reduction of the employer’s prime social insurance contribution, a total reduction of contributions by eight percentage units from 20% to 12% of the nominal wage rate. The measure aims to reinforce employees’ disposable income and cut out the incentives of moonlight employment, thus helping the finances of the system.

The tax proposals mainly aim at the simplification of the system in order to reduce tax-evasive behavior and balance the tax burden on personal incomes and small-firms. Regarding indirect taxation, the proposal suggests the introduction of only two VAT rates with a standard rate of 20% and a reduced rate of 10%, while the current mid-rate of 13% is abolished. Income tax reform envisages a unified corporate tax rate at 20%, and a personal tax rate at 20% gradually rising by 1% to a maximum of 30% for the Euro 50,000 income bracket.

Our alternative is the outcome of a detailed empirical investigation of labour market practices, the operation of the Greek tax system and the measurable effect of investment on economic activity. However, the real question is whether it stands any chance to appeal to policy-makers in Greece and the European authorities, since a substantial renegotiation should take place between them prior to its implementation? Well, I think that a credibility argument enters here. An economy is prone to reforms only if it becomes more inclusive, and growth remains the single most important factor in ensuring such a prospect. To let Greece continue on the current fiscal extravaganza will only mean further problems in the near future.

Nicos Christodoulakis is Professor of Economic Analysis at the Athens University of Economics & Business, and Visiting Professor at the Hellenic Observatory, LSE.

The blog post represents personal views and not those of the Hellenic Observatory or the LSE.

 

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Nov 8 2018

Moscow-Athens Links: Rhetoric and Tactics

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Greece is ‘the closest collaborator and partner of Russia in Europe’ said the Russian President Vladimir Putin to the Greek Prime Minister Kostas Karamanlis during their meeting on 9 December 2004 in Moscow. The Greek Prime Minister returned the compliment with a more strategic phrasing: ‘You have called my country a strategic partner of Russia, this corresponds to the level of our relations and I consider it a stable parameter of our foreign policy’.[1] The Russian Foreign Minister, Sergey Lavrov, addressing the Greek public a few years later on 2 December 2009 said, ‘I think there are few countries in the world that are bound by such a long history of sincere friendship as Russia and Greece. Russian-Greek relations have always rested on the solid basis of trust and mutual sympathy between our peoples’.[2]

Much has been said and written about the ‘special relationship’ between the Greek and Russian people that allegedly translates into a ‘strategic’ relationship implying at times a ‘geopolitical axis’ of deep historical and cultural roots. Russia’s post-Cold War foreign policy provides no evidence of a ‘strategic’ place reserved for Athens. Contemporary Russian policy does not take place in a historical vacuum. It displays continuity with the southern policy of the Soviet Union which took no proactive mediating or conflict resolution role in any of Greece’s first order security concerns (Turkish claims over the Aegean; Turkish occupation of Cyprus). What about the recent past?

The expectations of Athens that post-Cold War liberalism would allow the two partners to forge closer energy cooperation and work together to shape an inclusive, principles-based European security order have proven futile. Despite the common views on how stability and security could be best served in the war-torn Balkans of the 1990s, Russia was the first major power and permanent member of the UN Security Council to recognise FYROM with its constitutional name on 4 August 1992, while Athens was giving a hard diplomatic fight over this identity rather than security issue. Russia became the fiercest opponent of the 2018 Prespes Agreement between Skopje and Athens to resolve this name dispute after 25 years of stalemate.

What has happened on the much anticipated bilateral energy partnership, an idea shared cross all Greek political parties? The lure of Russian gas and oil-fuelled pipelines that would elevate Greece’s geopolitical and economic weight has evaporated slowly only to increase Greece’s dependency on energy pipelines crossing Turkey which Moscow calls an ‘energy strategic partner’.

On security issues, Greece, an EU and NATO member, has been following a pragmatic approach, keeping an open ear to Moscow’s security concerns in Europe. President Medvedev’s call in 2008 on a new European security dialogue was taken aboard by Athens who used its OSCE Chairmanship in June 2009 to launch the ‘Corfu Process’ to restore trust between the West and Russia after the Russian-Georgian war. The effort did not advance amidst a new Cold War type of deteriorating relations between the West and Russia especially after the Crimea annexation in 2014.

Putin’s hard power politics in Eastern Europe and the embracing of a propaganda war with European countries made Russia not a stabiliser but a revisionist power, undermining western governance structures. A revisionist Russia in a strategic partnership with (an at times anti-Western) Ankara makes it a very difficult partner for Greece. The tactical consensus reached by current political leaderships in Moscow and Ankara over a wide range of important issues (Syria, NATO’s role in Black Sea, defence cooperation, energy) indicates a shared view on contemporary international politics, even if one of shallow historical roots. Policies should, however, be carefully assessed even if part of tactics. Lacking a sound global strategy Vl. Putin has often resorted, many times successfully, to crafty tactics to meet Russia’s interests in today’s complex world.

An interest-based policy is a pragmatic foreign policy of any Greek government. Words of friendship are welcome and should be integrated in shaping multidimensional external relations. But they do not substitute for the only historically proven anchor of Greece’s economic development and security; its European allies. No specialness but pragmatism depicts Athens-Moscow links.

Contributor: Panagiota Manoli is Assistant Professor in International Political Economy at the Department of Mediterranean Studies, University of the Aegean. She was a Visiting Researcher at the Hellenic Observatory from March to September 2018.

[1] https://www.news247.gr/afieromata/oi-rosoi-einai-filoi-mas-oi-ellines-prothypoyrgoi-poy-pigan-sti-rosia-apo-to-1979-os-simera.6339512.html

[2] Speech of the Russian Minister of Foreign Affairs Lavrov S.V. to the Greek society. Athens 2.12.2009. http://www.mid.ru/en/foreign_policy/news/-/asset_publisher/cKNonkJE02Bw/content/id/270818

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Aug 21 2018

Leadership is about character, courage and empathy: Alexis Tsipras has failed on all fronts during the Greek fires

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At least 91 people have been killed in wildfires in Greece, with the Greek government, led by Alexis Tsipras, facing criticism over its handling of the disaster. George Kassimeris argues that the response from Tsipras constituted a failure of political leadership, and it is difficult to see how he will be able to re-establish his reputation and the reputation of his party in the eyes of the country.

Cometh the hour, cometh the hollow man or in Greece’s case, the hollow prime minister: Alexis Tsipras. Greece, over the past week, has gone through its gravest and most traumatic crisis since the second world war, after devastating wildfires decimated an entire seaside community outside Athens. As the death toll has now risen to 91 with another 25 people still unaccounted for, the horrific images of terror, anguish and destruction will remain imprinted on the national collective memory long after the demolition of all charred remains.

Obviously, a wildfire as ferociously deadly as this one is beyond human blame, and the political miscalculations that have come to light – the negligent planning, the delayed rescue and aid efforts – should not all be laid at the feet of the Greek government. That said, there could be no clearer instance of a situation where serious, effective leadership was desperately required. Defining moments demand from national leaders courage, character, imagination and most critically compassion. The Greek prime minister (the youngest in the country’s history) has failed dismally to show any of these qualities.

Oblivious and possibly ill-informed about the speed and ferocity of the destruction taking placing, Tsipras at first reacted as if he had been so lulled by his summer sojourn that he was not quite ready to acknowledge reality, let alone attempt to master it. It took him more than 48 hours to decide to come out of his prime ministerial cocoon and deliver a few plain human sentences that people could understand before vanishing again. Only when the magnitude of the calamity became unbearable for the people on the ground did he resort on the fifth day –yes, the fifth – of the disaster to accepting ‘full political responsibility’, though without apologising or satisfying calls for the resignation of his civil protection minister and other key officials.

It was an empty, pointless gesture designed primarily for political damage-limitation purposes and which naturally added insult to injury for the people affected and the relatives of the victims. ‘How does he plan to redeem this political responsibility? What does political responsibility mean?’ a distraught 79-year-old man angrily asked a TV reporter, standing in front of his burnt home.

It is literally incredible that a politician like Alexis Tsipras, supposedly so savvy and politically astute could fail to appreciate how insensitive and contemptible this behaviour would appear. But then again, the same type of insensitive contemptible behaviour was displayed by George W Bush during Hurricane Katrina and Theresa May during the Grenfell Tower fires when both leaders not only failed to demonstrate compassion and empathy but even declined to visit the devastated areas right away. For the record, Tsipras’s unacceptably belated visit to the ravaged areas came a week after the event.

Political leadership is about courage, character and example. If such leadership is to mean anything at all, it must stand for principles that are believed in themselves. It is impossible to look at the Greek premier’s slow, detached, uncaring and unapologetic reaction to a grave national crisis and not conclude that sadly for him as a leader and tragically for the country as whole, he failed on every front.

As the county is trying to recover from the trauma of what happened, the question now is: will he be able to re-establish himself and his government in the eyes of the country? This is very unlikely, in my opinion. He has become damaged goods. His inability over the last week to do more than the bare minimum in a time of unparalleled disaster has cost him the respect of the Greek media and through them the faith of the Greek public.

Note: This article was originally published on the EUROPP – European Politics and Policy Blog.  It gives the views of the authors, and not the position of Greece@LSE , of EUROPP or the London School of Economics.

George Kassimeris – University of Wolverhampton
Professor George Kassimeris is chair in security studies at the University of Wolverhampton. He tweets @GKassimeris

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May 29 2018

The #MeToo Movement and the Greek Silence

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By Katerina Glyniadaki

Earlier this month, the verdict of the ‘wolf pack’ case sparked the #MeToo movement to spread across Spain. Both in the streets and on social media platforms, the court decision was met with uproar. According to the supporters of the campaign, the judges were biased, and their decision was overly lenient towards the perpetrators and rather unfair to the victim. This event brought forward the institutionalisation of patriarchal attitudes in the justice system and the systematic discrimination against victims of gender-based violence (GBV). Even if several months later, the movement which started in Hollywood last October, reached Spain, too. Continue reading

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Apr 23 2018

How to boost Greek exports

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By Peter Sanfey

The past year has seen some welcome, and long overdue, good news from Greece. After nearly a decade of deep recession, the economy started growing again in 2017, unemployment is falling and business and consumer confidence are rising. But sceptics would say that some bounce-back was inevitable after such a calamitous drop in economic activity. The question is whether this recovery is sustainable. The answer will depend largely on the extent to which Greek corporates can restructure their operations to take advantage of new opportunities in an evolving global economy. In other words, a sustainable recovery will need to be export-led. Continue reading

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Apr 17 2018

Greece’s clean exit: Politics vs economics

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By Lorenzo Codogno

There seems to be a strong convergence of interests between the Greek government, the European Commission and Eurozone Member States (and the IMF): they all want a clean exit from the Third Economic Adjustment Programme for Greece. Lorenzo Codogno explains that political motivations may well collide with the need to reduce risks and favour a smooth and successful return to normality with a post-programme in place. Continue reading

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Feb 26 2018

Uncovering the profound effects that pension and health care reforms have had in post-crisis Greece

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By Marina Angelaki

Pension and health care reforms introduced in Greece following the 2009 crisis, and the bail out agreements signed with the Troika of the European Commission, the European Central Bank and the International Monetary Fund, have attracted attention because of the significant cuts they entailed. Drawing on recent research, Marina Angelaki writes that focusing exclusively on retrenchment gives only part of the picture as it masks other transformative processes with long-term effects that have taken place in both systems over this period. Continue reading

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Feb 19 2018

Turning Greece into an Education Hub

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By Jessie Voumvaki

In the midst of a prolonged crisis, Greece urgently needs new growth drivers for its economy. Moreover, recent international research has identified that the negative impact of globalization on income distribution in advanced economies can be offset through increases in total factor productivity (TFP), which in turn requires, inter alia, investment in education. Leveraging on the booming global trend of students’ mobility and capitalizing on the academic excellence of Greek diaspora, Greece could become a regional education hub. Supported by a powerful reputation (dating back to ancient Greece) for producing educators, Greece could attract from abroad academic professors and university students – boosting its exports of services as well as its medium-term potential growth (through its transformation to a knowledge-intensive economy). Continue reading

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Feb 14 2018

Mobility of Highly-Skilled Individuals, Local Innovation and Entrepreneurship Activity

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In an open economy migration is a natural process. It certainly poses challenges for the host countries but also brings benefits, especially if skillful human capital is accumulated. High-skilled migrants bring advanced or “upper-tail” human capital (Mokyr, 2002; Squicciarini and Voigtlaender, 2015) to the host country, spur technological progress through the creation and diffusion of knowledge and innovation (Lucas, 2009; Kerr and Lincoln, 2010; Gennaioli et al., 2013). In contrast, the loss of highly skilled workers deprives their home countries of the scientists, entrepreneurs and other professionals who drive their economies to higher levels of efficiency and productivity.

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Feb 1 2018

The Effects of Economic Crisis on Greek Entrepreneurship

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By Jessie Voumvaki

Greek SMEs – which generate ¼ of Greek GDP and cover 45 per cent of the country’s employment – have been hit hard during the past decade by a perfect storm (i.e. sharp decrease of domestic demand, high political uncertainty, tight credit conditions and imposition of capital controls).

With the segment’s production having been reduced by more than 30 per cent during the crisis years, the surviving Greek SMEs are currently facing the great challenge of operational transformation to higher competitive standards. Continue reading

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