From a vicious to a virtuous cycle?
‘Turning Greece into an attractive investment destination: Opportunities and Challenges’
Nikolaos Karamouzis, Chairman of Eurobank Ergasias S.A. & Chairman of the Hellenic Bank Association
Dr. Platon Monokroussos, Group Chief Economist, & Deputy General Manager, Eurobank Ergasias S.A.
Dr. Tasos Anastasatos, Deputy Chief Economist & Assistant General Manager, Eurobank Ergasias S.A.
Since the signing of the first bailout agreement with official creditors in May 2010, Greece has made remarkable progress in eliminating its earlier fiscal and current account deficits, restoring international price competitiveness and implementing significant reforms in the institutional framework and the domestic labor and product markets. However, these improvements came at a high social and economic cost, especially in terms of output and employment losses, transforming what initially started as a fiscal crisis into a full-blown economic and banking-sector crisis. Furthermore, despite the most recent signs of stabilization in domestic economic activity, investment expenditure remains at quite depressed levels; export performance, despite recent improvements, lags behind that of other euro area periphery economies; and the country has yet to restore full market access.
One could cite several important factors that potentially explain the unprecedented depth and duration of the Greek crisis, ranging from the acute initial imbalances to significant policy mistakes made along the way and the lack of ownership of the agreed reforms by the domestic authorities. In any case, there are a couple of inescapable conclusions that can be drawn from the experience of the past several years. First, the roots of the crisis can be traced back to the consumption- and residential investment-driven growth model of the pre-crisis period, following Greece’s accession to the EMU. That model was mainly fueled by bloated fiscal deficits, cheap financing from abroad, wage increases that significantly exceeded productivity gains and unprecedented credit expansion. Over the pre-crisis period, the country did not manage to exploit the credibility implied by EMU membership to transform and modernize its economic structures and institutions. In addition, it did not channel the massive EU structural funding received into more productive sectors of its economy in order to boost competitiveness and embark on a sustainable growth path. In effect, in the previous decade Greece lost a valuable opportunity to create a competitive economy. Second, it is no longer disputed that, a sustained, job-creating, investments- and exports-driven economic recovery is the only remedy to heal the wounds inflicted by the ten year-long recession, which wiped out a quarter of the country’s economic output, leaving half of its youth unemployed and forcing nearly one in twenty Greeks to seek opportunity abroad.
1 The authors wish to thank Fokion Karavias and Foivos Karzis for their insightful comments; Anna Dimitriadou, Stelios Gogos, Antonis Kouleimanis, Paraskevi Petropoulou, Galatia Phoka, Thodoris Stamatiou and Elia Tsiampaou for their valuable help; any remaining mistakes are our own.-
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