Feb 25 2019

Increasing the Competitiveness of the Greek Economy: the role of reforms of product market and regulatory institutions

While recently completing three programs of fiscal consolidation and bailout, to achieve high and sustainable levels of economic growth, Greece needs to restore its competitiveness. One of the main determinants of competitiveness is the quality of the set of rules and regulations that govern the operation of product markets. Well-designed regulations, suitably applied and effectively enforced, so they promote competition, investment, and entrepreneurship can make a country competitive and prosperous. Over-regulation is generally associated with creating inefficiencies and poor economic outcomes as it reduces the intensity of competition which in turn reduces allocative, productive and dynamic efficiency (innovation).

Unfortunately not much has been done, by any Greek government, in this direction. The Greek economy is heavily regulated – its markets are among the most heavily regulated among the OECD countries. Further, in Greece, important regulations such as the Competition Law and network industry regulations that could promote the good operation of markets have not been enforced effectively.

In a recent study[1] a number of recommendations are made to improve competitiveness by designing and implementing a National Competition and Competitiveness Policy (NCCP) plan. The NCCP includes competition law enforcement in the more narrow sense BUT is much more than that. It includes three sets of measures and associated reforms:

An efficient policy for the adoption and control of regulations, including measures to:

  • Remove existing regulations which, without being necessary, hamper growth
  • Allow new regulations to be adopted only as a last resort
  • Reduce the number of new regulations
  • Improve the design and ex-post assessment quality of new regulations
  • Improve the way in which regulations are implemented and monitored

To implement this policy, the government has to establish new organizational and decision-making structures, most importantly, if we follow the British model, an Executive Committee for Better Regulation (ECBR) – a governmental committee providing advice, information and recommendations to Ministries in conducting Regulatory Impact Assessment Studies. ECBR must be assisted by a Strategic Group on Better Regulation with representatives from SEV, of the workforce and consumers. Its mandate must include providing advice/recommendations to the Reducing Regulation Committee – a decision making body (Sub Committee of the Cabinet).

Next, a modern and effective legislative and institutional framework for dealing with cases where regulation is necessary for satisfactory market outcomes: Competition Law enforcement & ex ante regulation of network industries. In Greece the quality of institutions and of enforcement remains low. Some of the main problems are:

  • (Lack of) Independence of Competition Commission (Epitropi Antagonismou)
  • Absence of specialized Courts of Appeal
  • Inappropriate legal standards (decision rules guiding assessment procedures).
  • Insufficient resources in terms of quantity and quality
  • Inefficiency: long delays in investigations, in decision-making and in the appeal process.
  • The extremely important competitive neutrality principle, whereby public organizations and firms are treated on an equal footing to private firms, is not applied.

The importance of effective competition law enforcement is empirically demonstrated in a recent publication[2]. It is shown that it has a positive and statistically significant effect on labor productivity growth especially in laggard countries like Greece.

Finally, measures for the development and spread of competition advocacy are needed – to promote the short-and long-term benefits of competition, so that the competitive culture permeates deeply the Greek economy and society.

The deep economic crisis that started in Greece in 2009 was a long time coming. For at least two decades leading up to 2009, Greece has been steadily losing its competitiveness vis-à-vis other EU and OECD countries. This negative trend appears to have been halted following the reforms implemented under the Economic Adjustment Programs and in some cases there has been evidence of a slow but steady improvement from 2011-2012, which, unfortunately, seems to have been stalled and sometimes reversed from 2015 onwards. Thus, despite the progress, there is still significant room for improvement for Greece to regain its international competitiveness. The effective completion of structural changes and the formulation of a long-term strategy centered around a coherent National Competition and Competitiveness Policy plan should clearly aim to privatize public enterprises, liberalize product markets, remove unnecessary and distortive regulations and strengthen independent regulatory bodies. These reforms are critical for the short and medium term recovery and pivotal for creating the conditions for innovative and sustainable growth.

[1] Katsoulacos Yannis, Christos Genakos and George Houpis “Product Market Regulation and Competitiveness: Toward a National Competition and Competitiveness Policy for Greece”, in “Beyond Austerity: Reforming the Greek Economy”, Eds. Meghir K, C. Pissarides, D. Vayanos and N. Vettas. MIT Press (2017).

[2] Benetatou K., Y Katsoulacos, K Kyriazidou and G Makri (2019) “Competition Policy and Labor Productivity Growth: Some new evidence”, Empirical Economics.

Yannis Katsoulakos is a Professor at the Athens University of Economics and Business, Department of Economic Science 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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