Understanding the Greek Economic Crisis

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Understanding the Greek Economic Crisis

• Temple University
• Center of Hellenic Studies

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Understanding the Greek Economic Crisis Keynote
Speaker Dr. George Tsetsekos, Dean LeBow College
of Business Drexel University   Prof. Kyriakos
Kontopoulos, Sociology, Temple University Evangelo
s Delikouras, Partner, AFP Panagiotis
Tsaoussis, Sr. Vice President, ING Christina
Morrison, Sr. Vice President, Merck   Elena
Panaritis, Economist, Member of Greek
Parliament ( via teleconferencing )  Saturday
April 24, 2010 at 2 pm Michell Pavilion at St
George, Media Organized by Temple
University Center for Hellenic Studies  Aristotle 
Academy at St George Media
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Outline

1. The Problem and its Solutions - (GT)
2. Pre-existing Conditions / Background - (KK)
3. Creation of the Fiscal Crisis of the State -
   (PT)
4. What Is To Be Done
5. Macroeconomic (PT)
6. Institutional (EP)
7. Business (CM/ED)
8. Can these Be Done by Greeks? (All)

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What is the Problem?

• The size of
• Public debt
• Government deficit
• Current account deficit
• Trade deficit
• Needed Liquidity

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Debt Issuance RequirementsHellenic
Republic2010-2013
Year Deficit (B) Target Deficit/GDP Refinancing needs (B) Total Debt (B)
2010 21 8.7 33 54
2011 13 5.3 44 58
2012 7 2.8 42 50
2013 6 2.0 34 40
Source Bloomberg, 2010 Stabilization Growth
Program
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Deficit Total Debt
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What is the Problem?
2006 2007 2008 2009 2010 2011 2012 2013 2014
GDP 210 226 239 237
Gov Deficit -7 -11 -16 -32 -21 -13 -7 -6
( GDP) -3 -5 -7 -14
Gov Exp 43 45 47 50
Gov Rev 39 39 39 36

Gov Debt 205 216 237 273
( GDP) 97 95 99 115
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The Solutions

• Leave the Euro-zone
• Default
• Bailout through EU (mainly Germany)
• Debt guaranteeing for harsh fiscal austerity
• Grow out of debt

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Option 1 Leave the Euro-zone

• Pros
• Strengthen exports by devaluing the currency
• Invest in competitive sectors
• Cons
• Conversion expenses
• Reputational costs
• Impact on other EU countries

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Option 2 Default

• Pros
• Negotiate a workout with institutional investors
• Avoid huge tax burden on middle class
• Cons
• Cut out of capital markets
• Banking asset crisis
• Capital flight

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Option 3 Bailout through EU

• Mainly Germany and/or IMF
• Pros
• Reduced interest rates
• Avoid immediate state default
• Cons
• Dependence on externally imposed fiscal program

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Option 4 Debt guaranteeing for harsh fiscal
austerity

• Pros
• Continuity
• Maintain access to the financial markets
• Cons
• Expensive
• Requires agreement of all parties

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II. Background/Pre-existing Conditions

1. The historical dysfunctions of the Greek State
   and its contemporary Malformed Capitalism
   ??sµ??f?? ?ap?ta??sµ??
2. Post-War Unemployment and Greek Statism.
3. Rapid Modernization but Lagging Development.
4. Party bipolarity and Political Clientelism.

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The Historical Dysfunctions of the Greek State

•  A Preemie State, minimal, inorganic, dependent
  on England
•  Piecemeal Liberation and Onerous Loans for Wars
•  Poverty and Clientelism
•  Shift of Reliance from Civil to Political
  Patronage Parties of Notables
• Contemporary Deformed Capitalism Form.

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Post-War Unemployment and Greek Statism.

•  Depression, Foreign Occupation, and Civil War
•  Unlimited Supply of Labor but Limited
  Industrialization Emigration
•  Primary City Dominance All Roads Lead to Athens
•  The State as the Employer of Last Resort

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Rapid Modernization but Limited Development
since the 1960s

• Lavoro Nero, Ploutismos, and Consumerism
•  Corruption Everywhere Penia Technas
  Katergazetai
•  Deformed Lemon Capitalism
•  But We Are Europeans

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Party Bipolarity and Political Clientelism in
the Post-Junta Era

•  Two-Party System in an Institutional Vacuum No
  Loyal Opposition
• The Governing Coalition Switch and Societal
  Demands
• Vertical Integration of Parties and
  Over-politicization of Decisions
• Thus, Greece became a Poor Country with Rich or
  Richly Living Greeks.

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III. Creation of Fiscal Crisis of the State

• 5. National Debt and Budget Deficits at Current
  Impasse with public sector driving the debt
• 6. Current financial situation in Euro-zone
  Periphery
• 7. Wake up call for Euro
• 8. How much corruption really costs?
• 9. Global Great Recession as tsunami on Greek
  economy

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Public sector drives total debt
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(No Transcript)
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A wake up call for the Euro
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How much corruption really costs?
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The 4-4-2 system

• According to a senior government official some
  tax offices operate a "4-4-2 system," a reference
  to soccer tactics.
• If an individual or firm owes 10,000 in taxes,
• they slip 4,000 to the inspector,
• keep 4,000,
• and pay 2,000 to the state.

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IV. What Is To Be Done

• Macroeconomic
• Normal market solutions will not work
• Help from EU IMF
• Institutional
• Business

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The Role of IMF

• Promotion of global economic cooperation
  stability
• 186 country members
• Policy advice to governments and central banks
• Technical assistance training on economic
  matters
• Research, statistics, analysis
• Loans for economic difficulties and impoverished
  countries

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IV. What Is To Be Done -1

• 9. Macroeconomic adjustments IMF-like (for
  lower borrowing costs)
• ?sfa??st??? / Social Security
• F????????? / Taxation
• ??s???????? controls / Compensation
• Abolition of Ineffective Programs
• Opening of close shop professions 

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IV. What Is To Be Done -2

• 10. Institutional Reforms Establish fair and
  transparent Rules of the Game through
• Checks and Balances (predictable processes low
  transactions costs real dead lines e.g.
  Election Dates)
• Politically Neutral Institutions
• Budget Office Ge???? ????st???? t?? ???t???
• Statistical Service of Greece
• IRS
• Judiciary (courts)
• Independent and Autonomous Council of Economic
  Advisors
• Open Feedback Action Taking Mechanism of all
  public services from users e.g. citizens

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IV. What Is To Be Done -3

• 11. Developmental Plans to decrease Statism  
• Privatization of State-controlled corporations
• Decentralization of the State ?p????t??s?.
  Kallikrates?
• Free market in higher education (certificates,
  degrees, MAs)
• based on international accreditation reviews
• Post-industrial turn for educated youth
  college-based incubators
• Funding incubators for Small Businesses
• Regionalism for developmental projects EU funds
  absorption
• Regional Training for Balkan and Arab countries
  openings
• consulting and export support for small companies

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(1821-2010) From Crisis of 2010 (2010-.) To
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Argentina or Brazil?







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Conclusions

• This the biggest post war crisis for Greece
  leading to prolonged recession to fix its
  troubled public finances and systems
• Historical opportunity for Greece to finally
  become a modern western european state
• The challenge remains if Greek society can take
  the needed harsh structural reforms

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IV. Can these Be Done by Greeks?

• By Greece alone?
• Within the Eurozone framework?
• Panelists responses and open discussion.