Monday September 22, 2014 Search
Weather | Athens
31o C
22o 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)  
Universities threatened by transfers
Capital changes
High stakes after the Scottish vote
Breathing room
Results of probe into 20 Lagarde list names due soon
Members of the Financial Crimes Squad (SDOE) and tax inspectors involved in an investigation into the so-called Lagarde list of Greeks with Swiss bank accounts expect to be able to announce ...
Police refute reports of Jihadi training
Greece is not a training ground for Jihadis, the Greek police said in a statement released late on Friday in response to reports in the local media claiming that radical Islamists have been ...
Inside News
ANALYSIS
Pegging reforms to debt relief acts
The government appears determined to walk the road of Portugal by tapping the markets to avoid a third bailout loan from the EU and even show the IMF the door. However, it may trip if talks ...
Demand for diesel boosts total fuel sales
After five years (2009-13) of decline, the fuel market returned to positive territory in June, albeit at the marginal rate of 0.3 percent year-on-year, according to official data, capitalizi...
Inside Business
SOCCER
Reds beat Veria to claim league lead
Olympiakos thumped hitherto Super League leader Veria 3-0 on Saturday to go alone on top of the table for the first time after four rounds of games. Four days after putting three past Atleti...
SOCCER
Triumph for PAOK, historic result for Asteras in Europa League
Greek teams produced a patchy record on the opening night of the Europa League group stage on Thursday, as PAOK thrashed Dynamo Minsk, Asteras Tripolis snatched a draw at Besiktas and Panath...
Inside Sports
SPONSORED LINK: FinanzNachrichten.de
SPONSORED LINK: BestPrice.gr
 RECENT NEWS
1. Reds beat Veria to claim league lead
2. Pegging reforms to debt relief acts
3. Demand for diesel boosts total fuel sales
4. Foreign investors not overly concerned about political risk
5. IMF unhappy over social security debt collection
6. Agenda
more news
Today
This Week
1. IMF unhappy over social security debt collection
2. Foreign investors not overly concerned about political risk
3. Demand for diesel boosts total fuel sales
4. Agenda
5. Pegging reforms to debt relief acts
6. ‘Greece can meet its needs on its own’
Today
This Week
1. Greece at bottom of social justice scale among EU28
2. ‘Greece can meet its needs on its own’
3. Central Athens traffic restrictions back in force on Monday
4. Lost in the fog
5. Record sum of new debts to the state in August
6. Democracy under Pressure | Live Streaming
   Find us ...
  ... on
Twitter
     ... on Facebook   
About us  |  Subscriptions  |  Advertising  |  Contact us  |  Athens Plus  |  RSS  |   
Copyright © 2014, H KAΘHMEPINH All Rights Reserved.