A New Economic Governance Model for Greece in the 21st Century
Please cite the paper as:
“Constantine E. Passaris, (2014), A New Economic Governance Model for Greece in the 21st Century, World Economics Association (WEA) Conferences, No. 2 2014, Greece and Austerity Policies: Where Next for its Economy and Society?, 20th October to 21st December 2014”
The mission and mandate of economic governance in Greece and its accompanying institutional architecture requires a re-alignment in order to conform to the realities of the new global economy of the 21st century. Two recent events, one foundational and the other cataclysmic, have precipitated the need for a new vision and a new conceptual framework for revitalizing and modernizing Greece’s economic governance architecture. These two defining milestones are the emergence of a new global economy and the devastating consequences of the 2008 global financial crisis on the Greek economy.
This is a good paper, as far as it goes, but it misses out some critical elements. The Greek economic problems cannot be divorced from the current structure of the Greek economy, and from the nature and practice of the Greek political institutions.
As for the structure of the economy, the problem that the author concentrates on – reducing unemployment – is not wrong, but its origins include the disproportionate percentage of “self employment” in Greece, where the private sector wanted to avoid the onerous weight of labor regulations, so hired “contractors” rather than take on employees, which led to both incentives to and opportunities for massive underpayment of taxes, of which the Greeks, being a practical people, took full advantage.
This tax deficit contributed to a) the government’s persistent fiscal deficit (obviously) and b) to a culture of impunity for violation of the tax regulations, which expanded the problems. Further, people who don’t make any payment to the government can come to view the state cofffers as just a source of income, which comes “from someone else.”
All of this, and much more, has been repeatedly endorsed by a totally disfunctional political system, which is in the hands of special interest groups to a shocking degree. No economic reform can succeed until and unless there is root-and-branch political reform. Anything else is pissing into the wind.
The author’s growth oriented strategy emphasizes a new economic governance architecture and supply side reforms. He says that the Greek economic governance was too outdated to accommodate economic globalisation and that in essence what is required is to stretch out austerity programs over a longer timeframe. Following the Confucian classics, Li Chi or Records on Ceremonial (the1st B.C),it has no problem to solve the imbalance of the public finance over 30 years. I agree with such a wise saying and carrying out austerity programs by a longer timeframe. Theoretically speaking, austerity is a kind of deflation and recession factor. The more austerity policies are pressed ahead, the more the economy deflates and declines. Although we recognize seriously there exists many big problems on its governance and the structure of the Greek economy, should we simply attribute the Greek economic crisis to the Greek outdated economic governance? It is said that a contraction of domestic demand in Greece has started prior to the eruption of the sovereign debt crisis in late 2009. It is right, judging from economic theory that the Greek financial crisis has been has been caused by demand side. Nevertheless, in his argument it seems to have been caused by supply side. My opinion is that the global financial crisis of 2008 and the Great Recession are mainly attributable to economic globalisation. Hence, the Greek economic governance need not be congruent with globalisation. Rather, it was important for Greece to make any strong regulations to the bad aspects of globalization. It is a matter of industrial policy to embrace efficiencies, raise productivity and promote innovation regardless of demand side. While the Greek public sector faces with harsh fiscal constraints, Greece should increase and ameliorate public spending as much as possible. His discussion and logic seem to be almost the same as neoclassical austerity policies, as he looks like laying more emphasis on supply side than demand side. Of course, I do not negate supply side as industrial policy is stated above. Huge financial resources are absolutely
needed to implement fiscal policies : to create job, to cut tax and to carry out other welfare measures for people, and to make the Greek economy and the EU economy recover. Where do they come from? Currently the lack of fiscal union is being argued to organise public investment and establishing the treasury-central bank is discussed in the Eurozone. However, I think it is the best policy to exercise the ECB seigniorage in order to supply money and currency for public investment within the scope of the EU current condition.
Dear Colleague Susumu Ono
Greetings from Canada. Thank you for taking the time to read my paper and list your insightful comments. I am sure some of your observations will find their way into the final draft of this paper.
Dear Colleague Michael Culligan
Greetings from Canada. Thank you for taking the time to read my paper and list your insightful and supportive comments. I am sure some of your observations will find their way into the final draft of this paper.