Greece’s economic strategy and Eurozone crisis: TAVA
Please cite the paper as:
“Gary Dymski and Stefanos Ioannou, (2014), Greece’s economic strategy and Eurozone crisis: TAVA, 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”
Abstract
This paper explores the elements of economic strategy for a national government taking office in Greece under the constraints imposed by Eurozone membership, even while hoping to transcend and transform those constraints. We first review some of the empirical and institutional economic realities faced both by Greece and the member nations of the Eurozone; while these are well known, it is important to recognize the parameters within which our considerations must unfold. We will then list some of the constraints that arise under the conditions of neoliberal global capitalism that provides what passes for order in the international economic system at the present time. We next turn to the problem of national economic strategy directly. As indicated, there are various alternatives, even if no one of them can eliminate all vestiges of the crisis that has made necessary a dramatically new policy direction for Greece and for Europe.
This is a very interesting paper that discusses many important aspects of the Greek crisis and describes various alternative policies that could be used to deal with the crisis.
In my view, of particular importance is the idea of industrial policy and the role of finance in promoting such a policy. One of the reasons that GDP has fallen so rapidly in Greece over the last years is that the Troika and the Greek governments had assumed that the reduction of wages would increase exports and investment significantly. However, exports and investment have been highly inelastic with respect to wages and, as a result, the adverse effects of wage reductions on consumption (and thus on domestic demand) have prevailed. This experience has very clearly illustrated the need for a radically different approach that will focus on the role of industrial policy in attaining a sustainable rise in investment and exports. Your analysis describes some crucial issues in the implementation of such an approach. I think that these issues should be the subject of detailed research in the future.
I have two general questions:
(1) The problem with the Greek public sector before the crisis was not that it was a large sector (as it is often argued), but that in many cases it was functioning ineffectively. Ineffectiveness refers, for example, to the fact that the reduction of the poverty rate achieved per euro of social protection expenditures was relatively low or that the quality of various public sector services (relative to the resources) was not high enough. Do you think that the improvement of public sector’s effectiveness is an important issue? And, if yes, which are some policies that could be implemented to make the public sector more effective?
(2) I think that some of the policies that you suggest in section 5 (such as the capital flow regulation or an ECB-coordinated ‘bad bank’) could not be easily implemented within the current institutional and political structure of the Eurozone. As you point out in footnote 24, it is possible that such policies will not be permissible within the framework of European law. In such a case, what do you think would be the best strategy for Greece in order to promote these policies?