Thursday November 27, 2014 Search
Weather | Athens
12o C
9o C
News
Business
Comment
Life
Sports
Community
Survival Guide
Greek Edition
Mistakes of the past weigh on the present

By Alexis Papachelas

The discussion about the fiscal multipliers used to gauge the course of the Greek economy is very interesting. If nothing else, it has taken the debate to a more serious level. We are no longer looking for the grand conspiracy that brought the country to its knees, but, rather, at whether and what mistakes were made in the first memorandum. This debate is already under way at the International Monetary Fund as well at various, mostly American, think tanks.

The handling of the Greek crisis stirred a good deal of controversy in the IMF from the start. There were those, for example, who insisted that the model of internal devaluation would not work or solve the country’s problems. This is why they argued in favor of a “temporary” eurozone exit as the more sensible solution. Another subject of debate was whether there needed to be a write down of Greek debt from the start of the first fiscal adjustment program. The side that prevailed, strongly, was that of German Chancellor Angela Merkel, who argued that debt haircuts need to be granted gradually, as a reward for applying agreed measures and reforms.

There are, however, other factors that contributed to the deepening of the Greek recession as well. The massive outflow of capital from Greek banks was not foreseen even though it eventually created major problems in local lenders’ liquidity and in the economy. The troika also failed to predict and stem skyrocketing state debts to individuals and enterprises, which dealt a catastrophic blow to the market. Every country facing bankruptcy has to deal with state arrears, but in Greece the phenomenon grew to frightening dimensions.

The basic recipe for internal devaluation also contained a lethal flaw. Imports declined significantly, as the model predicted, but the growth that was supposed to come from exports never did, because becoming competitive does not just mean slashing labor costs. The biggest problem that everyone overlooked was the inability of the Greek political system to tear down the obstacles to growth and entrepreneurship, and to attract investment.

In my humble opinion, the Europeans, and our northern European friends especially, made another major mistake: when they saw the donkey dig in its heels and make no progress on reforms, they threatened it with the euro exit whip. It made sense from their end, but the over-use of the threat created a vicious cycle that dogs Greece to this day. The feeling that there is a danger of returning to the drachma has not disappeared completely, and the result has been to make foreign investors very wary, especially when it comes to the country’s drive to privatize state assets.

ekathimerini.com , Saturday February 2, 2013 (17:48)  
Beware of the fallen idols
The hard truth
Extremism from a bygone era
No call for more games
Hundreds of migrants on crippled ship off Crete
Ships from Greece rushed to help after a crippled freighter crammed with hundreds of migrants floundered for hours Tuesday in gale-force winds and high waves in the Mediterranean Sea, offici...
Policemen suspected of working at Piraeus bar where shooting took place
At least three serving policemen are thought to have been working at the bar in Mikrolimano, Piraeus, where a 31-year-old man opened fire with an AK-47 early on Saturday, resulting in 15 peo...
Inside News
Debtors snap up offer for easier settlements
The government’s plan for the settlement debts to the state is paying off as Greeks are signing up in numbers for the more favorable payment scheme. In less than 24 hours since the opening o...
Belgium gas firm said to be eyeing DESFA
Belgian natural gas network operator Fluxys is said to be eyeing the Greek gas grid, after signing an agreement on Monday with its Greek counterpart (DESFA) for the drafting of a study on th...
Inside Business
SOCCER
Atletico eyes last 16 berth against Olympiakos
Greek champion Olympiakos faces a tough task if it is to prevent last season's beaten finalist Atletico Madrid sealing its passage into the last 16 of the Champions League at the Vicente Cal...
SOCCER
EPO ends soccer suspension, Super League resumes
Soccer action will resume this weekend after the Super League convened on Monday, elected a new president and alternate president and sent a letter to the soccer federation that assures it t...
Inside Sports
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Hundreds of migrants on crippled ship off Crete
2. Atletico eyes last 16 berth against Olympiakos
3. Debtors snap up offer for easier settlements
4. Belgium gas firm said to be eyeing DESFA
5. OLP approval paves way for investment in Piraeus
6. Airport tender exceeds expectations
more news
Today
This Week
1. Anastasiades to undergo heart surgery in the US on Dec 4
2. Cargo vessel carrying hundreds of migrants adrift southeast of Crete
3. Two police officers among 9 arrested for drug trafficking
4. Trade deficit widens by 8.7 percent during Jan-Sept period, says ELSTAT report
5. Fraport, Copelouzos offer highest bid for Greek regional airports
6. Stop Mediterranean becoming vast migrant cemetery, Pope tells Europe
Today
This Week
1. Give Greece a chance
2. Biden heads to Istanbul amid tension over Cyprus EEZ violation
3. Scientists expand excavation of ancient Amphipolis
4. Extremism from a bygone era
5. Piraeus nightclub shooting leaves 3 seriously injured
6. Cosco’s Greek unit adds multinational rail-freight client
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.