The Greek Economy and the Crisis
.
Panagiotis Petrakis The Greek Economy and the Crisis Challenges and Responses
Prof. Panagiotis Petrakis National and Kapodistrian University of Athens Department of Economics Stadiou 5 10562 Athens Greece ppetrak@econ.uoa.gr ISBN 978-3-642-21174-4 e-isbn 978-3-642-21175-1 DOI 10.1007/978-3-642-21175-1 Springer Heidelberg Dordrecht London New York Library of Congress Control Number: 2011938469 # Springer-Verlag Berlin Heidelberg 2012 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Printed on acid-free paper Springer-Verlag is a part of Springer ScienceþBusiness Media (www.springer.com)
Contents 1 Introduction: The Responsibility of Knowledge, Challenges and Responses... 1 References.... 9 2 The Changing World and the Greek Economy Before the Crisis... 11 2.1 Basic Sources of Growth... 12 2.2 The Unexplained Part of Growth, or the Factors Shaping Total Productivity... 14 2.3 Small Open Economies and Development... 16 2.4 Fundamental Global Economic Changes..... 17 2.5 The Monetary Economy... 23 2.6 Population Flows... 24 2.7 Technology and Innovation... 24 2.8 Energy and Climatic Change... 27 2.9 The Formation of National Power... 31 2.10 Southeastern Europe and Greece... 34 References.... 37 3 The Pre-Crisis Growth of the Greek Economy... 39 3.1 Growth in the Greek Economy... 40 3.2 Financing of Growth and Wealth... 42 3.3 Production and Income... 46 3.4 Consumer Expenditures... 48 3.5 Imports, Exports and Balance of Payments... 48 3.6 Competitiveness and Productivity... 50 3.7 Growth and Demand in the Greek Economy... 57 3.8 The Size of the Shadow Economy and its Effects... 58 3.9 Entrepreneurship... 64 References.... 69 4 The Question of Growth... 71 4.1 The Issue of Human Development... 71 v
vi Contents 4.2 Examination of the Greek Economy s Convergence with the European Union... 77 4.3 The Question of Quality of Life and Development... 82 References.... 86 5 Human Capital: Education, Innovation and Health... 87 5.1 The Quantitative Dimension of Education... 87 5.2 The Qualitative Results of the Education System... 90 5.3 Education and Labour Market... 96 5.4 The Relation Between Research and Innovation as a Serious Problem in the Greek Educational System... 104 5.5 The Financing of Education... 106 5.6 Summary of Problems in the Education System... 110 5.7 The Development of the Human Capital..... 111 5.8 Innovative Activity of Enterprises... 114 5.9 Population Health... 122 References.... 125 6 Cultural Values, Stereotypes and Historical Evolution... 127 6.1 The Evolution of the Greek Economy... 128 6.2 Risk, Commitment Time of Investment Funds and Productive Model in the Greek Economy... 135 6.3 Cultural Values and Stereotypes... 136 6.4 Empirical Facts on the Hierarchy of Cultural Values... 139 6.5 Social Capital... 143 6.6 The Role of Family Networks in Greece...... 147 6.7 Economic and Social Reflections of the Cultural Model... 148 6.7.1 The Basic Description of the Model... 148 6.7.2 Temporal Orientation and Relationship with the Future. 153 6.7.3 Self-Employment and the Shadow Economy... 153 References.... 154 7 Idiosyncratic Economic Institutions... 157 7.1 Characteristics of Transactions... 158 7.1.1 Visible Transaction Costs... 158 7.1.2 Invisible Transaction Costs and Business Development.. 159 7.1.3 Invisible Transaction Costs and Corruption... 162 7.2 Property Rights... 163 7.3 The Oligopolistic Situation in Greece... 168 7.4 Greek and Foreign Companies... 170 7.5 The Structure of the Financial System: Banks or Financial Markets?... 174 7.6 Key Features of the Greek Financial System... 177 7.7 The Tax and Insurance System... 179 7.7.1 The Structure of the Tax System...... 182
Contents vii 7.7.2 Organisation and Operation of Social Insurance Schemes... 186 7.8 The Insurance Scheme in the Greek Economy... 187 References.... 191 8 Political Institutions and the Distribution of Income... 193 8.1 Political Institutions in Greece... 194 8.2 The Effectiveness of Political Institutions..... 198 8.3 Size and Efficiency of the Public Sector... 201 8.4 Bureaucracy... 203 8.5 Public Enterprises... 208 8.6 The Influence of the State on the Functioning of the Economy and Society... 211 8.7 Pressure Groups in the Greek Society... 212 8.7.1 Professional Organisations... 214 8.7.2 Freelance Professionals Unions... 215 8.7.3 Trade Unions... 219 8.7.4 Farmers... 222 8.7.5 Pensioners... 222 8.7.6 The Unemployed... 223 8.8 Political Institutions and Income Distribution... 223 8.8.1 Distribution of Income... 224 8.8.2 Redistribution of Income... 226 8.8.3 Key Features of Poverty in Greece... 228 References.... 230 9 Human Incentives... 233 9.1 Incentives and Economic Results... 233 9.2 Formation of Incentives... 236 9.3 Impact of Cultural Stereotypes on the Formation of Incentives... 237 9.4 Basic Incentive Mechanisms... 239 9.5 Incentives and Entrepreneurial Behaviour.... 241 9.6 The Importance of Investment Funds Commitment Duration and of Risk Taking... 243 9.7 Psychological Needs and Incentives... 247 9.8 Returns of Investments in Human Capital.... 247 9.9 Incentives and Economic Institutions... 251 9.9.1 The Financial System... 254 9.9.2 Financial System, Crisis and Financial Managers Incentives... 255 9.9.3 The Tax System... 256
viii Contents 9.9.4 The Social Security System... 257 9.9.5 Parallel Economy and Incentives.... 258 9.9.6 Incentives and Capital Returns... 262 9.10 Incentives and Entrepreneurial Activity...... 263 References.... 267 10 The 2008 2010 Crisis and the European Stability Mechanism... 269 10.1 Financial Crises in the Global Economy..... 270 10.2 The 2008 Crisis and the Real Global Economy... 271 10.3 The 2008 Crisis and the Greek Economy.... 275 10.4 The Phases of the Crisis over Time... 279 10.5 Internal Conditions of the Crisis... 286 10.5.1 Public Debt and its Maturity... 287 10.5.2 Spreads... 289 10.5.3 Credit Default Swaps... 289 10.5.4 The Three Credit Rating Agencies... 291 10.5.5 The Problem of the Financial System... 292 10.5.6 Public Lending... 295 10.6 External Conditions of the Crisis... 296 10.6.1 Germany s Role... 296 10.6.2 The Obama Administration s Policy and the US Financial System... 299 10.6.3 Creation of Rescue Packages in Europe... 300 10.7 The Creation of the ESM and the Entrance of the Greek Economy... 300 10.7.1 Measures of December 2009 (Stability and Growth Program, SGP)... 301 10.7.2 March 2010: The Result of Aggressive Market Pressure and the Additional Corrective-Supplementary Decisions of the Greek Government... 302 10.7.3 May 2010: Inclusion in the European Stability Mechanism... 303 10.8 The Evolution of Economies: The Unbalanced Recovery and the Global Imbalances... 305 References.... 308 11 The Deeper Causes of the Greek Economic and Social Problems.. 311 11.1 Special Features of the Institutional Background... 312 11.1.1 Cultural Background and Its Significance... 315 11.1.2 Property Rights Obscurity... 318 11.1.3 Political Institutions as a Defining Factor for Restructuring Economic Institutions... 320 11.2 Common Resources as the Main Source of Wealth... 322
Contents ix 11.3 The Moral Hazard in the International Financial System and the Institutional Weakness Within the EU... 324 11.4 The Long-Term Social Choice of Expanding the Public Sector as a Means to Absorb the Excessive Workforce... 328 11.5 Systematic Existence of High Risk Levels in the Greek Society and Economy... 330 References.... 331 12 The Greek Economy and the Crisis... 333 12.1 The Social Perception of the Crisis... 333 12.2 The Medium-Term Perspective in the International and European Economy... 336 12.3 The IMF, Growth and Adjustment... 345 12.4 The Classical and Peculiar Market Models, the Crisis and the Economic Adjustment Program (EAP)... 348 12.5 The Economic Adjustment Program, Policy and Income Distribution... 361 12.6 Economic Adjustment Program, Cultural Background, Motivation, Social Capital and Business Capital... 363 References.... 366 13 The Effectiveness of Economic Adjustment Interventions... 367 13.1 Fiscal Adjustments and Economic Developments... 367 13.2 Structural Interventions... 380 13.3 The Financial System and the Real Economy... 386 13.4 Education and Innovation... 393 13.5 The EAP s Working Hypothesis and the Greek Economy... 396 References.... 399 14 The Medium-Long Term Outlook of the Greek Economy... 401 14.1 The Medium-Long Term Perspective on the Greek Economy and the Sources of New Growth... 401 14.2 The Relationship Between the Key Factors of Growth and Other Factors (TFP)... 408 14.3 Overcoming the Trend... 415 14.3.1 The Political Conditions... 415 14.3.2 The Specifications of the Growth Model... 417 14.4 The Target, Instruments and Time Required to Overcome the Growth Trend... 419 14.4.1 The Objectives of the Growth Model... 420 14.4.2 The Instruments for Implementing the Growth Model. 426 References.... 429
x Contents Appendix: A Sectoral Proposal for Potential Growth in the Greek Economy. Climate Change, Population Ageing, Tourism and Culture.. 433 1 Geophysical Components of the Long-Term Evolution of the Greek Economy... 434 1.1 Climate Change and Its Effects... 434 1.2 Population Ageing... 435 2 The Tourism Sector and the Greek Economy.... 437 3 The Productive Sector of Culture... 442 4 Health...... 446 References..... 449