A nice paper from the Levy Institute on the beginnings of recovery in Greece following the painful combination of austerity and ‘reforms’ imposed by the so-called Troika of the IMF, the European Commission and the European Central Bank.
The Levy Economics Institute of Bard College is ostensibly non-partisan but much of its published output is in the post-Keynesian tradition, and inspired by the work of Hyman Minsky and Wynne Godley, who both worked at the Institute in their later years.
Here is the paper summary:
“The Greek government has managed to exit the stability support program and achieve a higher-than-required primary surplus so as to avoid being required to impose further austerity measures that would depress domestic demand. At the same time, the economy has started to recover, mainly due to the performance of exports of goods and tourism and modest increases in investment.
In this report, we review recent developments in the determinants of aggregate demand, with a particular focus on net exports, and provide estimates of two scenarios: one that assumes business as usual; the other that simulates the medium-term impact of an acceleration in investment.
We conclude with a discussion of the sustainability of Greek government debt, showing that it is crucial that the cost of borrowing remain below the nominal growth of national income.”
It is well worth a read and is not too long or technical.
With the current economic slowdown in the eurozone, Greece is likely to suffer once again, from an already critical starting point, with extremely high unemployment and sluggish growth.
The Greek crisis was caused by a combination of poor competitiveness, amplified and brought to a head by the large current account imbalances between eurozone member states, particularly the German surplus. The design of the eurozone was thus deeply flawed, in its inability to resolve these imbalances without provoking recession or, at the very least, sluggish growth.
The inability to reform the block has also exposed serious political flaws; in particular, the democratic deficit at the heart of the EU, and the divisions exposed by the crisis.
Having said all that, as already discussed here this week, were Germany to act to dramatically reduce its current account surplus in a way that boosts growth, this would help the entire region to rebalance while reducing the mass unemployment that afflicts many member states.
For Greece, an industrial policy that improves competitiveness and produces much faster growth in exports would be a big help. Growth in external demand would be greatly facilitated by a coherent strategy that encourages investment in sectors with a high income elasticity of demand from the rest of the world. This would mean that as regional or global incomes rise with economic growth, industries in Greece would be more able to respond and meet that demand, contributing more strongly to rising national income, GDP and employment.
As a small economy, Greece is dependent for rapid growth on external markets rather than domestic demand. Tourism is all very well, but a genuine recovery in living standards and employment will require growth in sectors that have the potential for more rapid rises in productivity, with strong linkages across the economy.
Greece deserves some good fortune after a disastrous and lengthy crisis, but economic conditions are far from stellar and may be set to deteriorate once again as growth slows across the world, not least in the eurozone.