Professional Documents
Culture Documents
Greece became a member of the five institutions that form the World Bank Group in
December 1945. It was among the first countries to get a loan to help rebuild the economy after
World War II. Today, Greece is a member of the five institutions that form the World Bank Group.
The World Bank Group finances projects, designs policies, and delivers programs to end
poverty in the developing world.
The first sign of trouble in Greece was when George Papandreou took over as prime
minister in October 2009 and found that the government had been understating its public debts for
years. Two months later Fitch downgraded Greeces debt to BBB+, the lowest credit rating in
Europe. Financial traders scrambled to work out the implications of a European Monetary Union that
contained members with such different profiles as Greece and Germany.
But the reality was that the EMU was a very thin veneer over deep economic, political and cultural
divisions.
Despite being poor, the Greek government has for decades sought to be generous to its
people. Historians point to the war-torn decades, including a civil conflict after the Second World War
that wiped out 10pc of the population followed by bloody clashes between Cyprus and Turkey in
1974: the Greek state has tried to soothe its people by creating a big welfare state and generous pay
and pensions - including low retirement age and the famous 13th and 14th monthly salaries.
When it came to joining the euro in 2001, it should have been obvious that Greece did not meet the
debt conditions. But, by spinning the numbers, Greece gained entry, not just to the single market but
to debt markets that allowed it to borrow as though it was as dependable as Germany.
Greece went on a spending spree on infrastructure, services and public sector wages. Meanwhile,
the Greeks stopped paying taxes. To Athens delight, banks and the financial markets filled the gap
by lending billions of euros. With the onslaught of the credit crunch, Greeces vast debts were
exposed - but so was the exposure of European banks. If Greece went bust, untold damage could
be unleashed across Europe and beyond: for a global economy still shattered from the 2008 banking
crisis, the prospect of another one was intolerable.
II.
Factors
A.) Trade
Exports are one way Greece has been told it can get itself out of trouble. But the country's
export-led recovery has yet to materialise.
Stuck in a monetary union that does not allow it to devalue its currency and help make its
industries competitive, Greece has had to undergo a painful process of 'internal devaluation'
instead, where it has reduced its labour costs through falling wages.
But export performance has continued to lag. The country's trade balance has improved
because Greeks are importing less, rather than selling more to the rest of the world. This is
partly a reflection of weak global demand, particularly in its biggest market - Europe - and also
due to the rising tax and bureaucratic burdens placed on Greek companies when it comes to
things like energy costs.
B.) Emigration
One trend that has helped Greece's unemployment figures is the exodus of young, skilled
people from the country.
Over 100,000 skilled Greeks migrated to work in Germany, the UK and the Gulf states, while net
emigration reached a record in 2013.
Net migration - the difference between those arriving and leaving the country - reached 52,000
in 2013 according to the European Commission. This equates to a rate of roughly 4.7 people
per every thousand leaving the country, usually to fill jobs across the EU.
C.) The Politics of Austerity
Greece's economic turmoil has led to the rise of a number of radical political elements in the
country. Foremost among them is the leftist Syriza party led by Alexis Tsipras. Syriza, who have
pledged to increase the minimum wage by 50pc, provide free heating and electricity for the
poorest and increase the size of the public sector, hold a five percentage poll lead in the
country. Should the ruling New Democracy fail to elect the presidential candidate of their choice,
this will trigger a general election in January which Syriza are likely to win.
D.) Growth
The Greek economy has contracted an astonishing 27pc after the onset of the crisis in 2007. This
was the worst recession in the entire euro-area and rivalled the economic meltdown last seen in the
US during the Great Depression.
This year, economic output expanded for first time in nearly eight years, with GDP growth of just
under 1pc, albeit from a very low base. However, the economy remains nearly 25pc smaller
than it was in 2008. Even if it continues to grow at a modest rate of 2pc per year broadly in
line with the EU average before the crisis it would still take Greece 13 years just to get back to
its pre-crisis peak, according to the International Labour Organization.
Much of this is can be attributed to the level of job destruction in the country. The shrinking of
the public sector has led to the loss of more than a million jobs which will take at least 20 years
to fully recover, according to the country's Labour Institute (Ine-Gsee). Of those Greeks who
have been out of work, nearly 75pc have been unemployed for more than a year.
F.)Debt
Anaemic growth means the country's debt ratio is higher now than at the start of the crisis in
2009. At 177pc of GDP, Greece's debt mountain is the largest in the euro-area and has forced it
to undergo a program of swingeing, growth-curbing austerity. Ballooning public debt is now
leading to increasing calls for Brussels to either write-off the country's debt or provide for some
form of debt relief if Greece is to have any viable hope of remaining and prospering in the
currency union.
Outside of Greece, rebalancing within the eurozone isn't going anywhere fast.
Since the crisis, the onus has been on southern debtor nations such as Greece to 'deleverage',
or reduce their debt burdens, while northern creditors should help ease this pain by running
deficits.
But according to Standard and Poor's, the gap between north and south is widening rather than
closing. Spain, Italy, Greece, and Portugal will owe a combined 1.85 trillion to non-residents by
the end of 2014, compared with 875 billion a decade earlier. Meanwhile the top-three creditor
nations in the euro - Germany, Belgium and the Netherlands - will see their a net external asset
position bumped up to 2.36 trillion this year, up from 343bn 10 years ago.
Stifling regulation, high energy costs, and a crippling tax burden are some of the factors that
continue to hold back Greek entrepreneurs. The country's business environment ranks behind the
likes of Macedonia and Slovenia and is the lowest in the continent. Globally, Greece stands at 52 in
the ranking of 189.
III.
Recommendations
Employment in Greece is in free fall, with more than one million jobs lost since October 2008a
drop of more than 28 percent. In March, the official unemployment rate was 27.4 percent, the
highest level seen in any industrialized country in the free world during the last 30 years.
In this report, Levy Institute President Dimitri B. Papadimitriou and Research Scholars Michalis
Nikiforos and Gennaro Zezza present their analysis of Greeces economic crisis and offer policy
recommendations to restore growth and increase employment. This analysis relies on the Levy
Institutes macroeconomic model for the Greek economy (LIMG), a stock-flow consistent model
similar to the Institutes model of the US economy. Based on the LIMG simulations, the authors
find that a continuation of expansionary austerity policies will actually increase unemployment,
since GDP will not grow quickly enough to arrest, much less reverse, the decline in
employment. They critically evaluate recent International Monetary Fund and European
Commission projections for the Greek economy, and find these projections overly optimistic.
They recommend a recovery plan, similar to the Marshall Plan, to increase public consumption
and investment. Toward this end, the authors call for an expanded direct public-service job
creation program.