{"id":10760,"date":"2017-03-06T13:31:39","date_gmt":"2017-03-06T11:31:39","guid":{"rendered":"https:\/\/www.dianeosis.org\/en\/?p=10760"},"modified":"2017-03-22T18:58:27","modified_gmt":"2017-03-22T16:58:27","slug":"a-new-production-model","status":"publish","type":"post","link":"https:\/\/www.dianeosis.org\/en\/2017\/03\/a-new-production-model\/","title":{"rendered":"A New Growth Model For Greece"},"content":{"rendered":"

S<\/span>ix years ago, Greece was on the brink of bankruptcy. To avoid falling over the edge, the country\u00a0was obliged to sign a series of agreements with the European institutions and the International Monetary Fund, and thus obtained\u00a0the largest loan in the history of mankind while undertaking one of the largest fiscal adjustments ever implemented during peacetime. By studying\u00a0the results of these agreements, it becomes clear that the country\u2019s preexisting\u00a0growth model did not work well.<\/strong> The reasons behind\u00a0this\u00a0have been\u00a0much discussed, and the blame game\u00a0\u2013 mostly\u00a0among politicians \u2013 has been\u00a0a common aspect of the public debate; and will probably continue to be so.<\/p>\n

The key question, however, is equally obvious: what happens now? If that growth\u00a0model failed \u2013 and fail it did, overwhelmingly \u2013 what should replace it?<\/p>\n

diaNEOsis assigned a team of Greek researchers, led\u00a0by Panos Tsakloglou<\/strong>, Professor in\u00a0the Department of International and European Studies at the Athens University of Economics and Business<\/strong> and member of diaNEOsis\u2019 supervisory board, to undertake a study with three objectives: to map the structural causes of the crisis, to record and evaluate everything that has been done during the last six years, and, mainly, to highlight the macroeconomic priorities and the necessary reforms required for the country to forge\u00a0a new and viable growth\u00a0model.<\/p>\n

You can read the full study here<\/a> (in Greek). Below, the basic findings will be examined.<\/p>\n

The New Production Model \u2013 A Study (In Greek)<\/a><\/p>\n

How did we arrive at bankruptcy?<\/strong><\/h2>\n

T<\/span>he factors that led Greece to the brink of bankruptcy have been much discussed, mainly in the context of the domestic political debate. However, there exist\u00a0some basic elements and facts that are undisputable and which describe the critical failures of the former Greek economic model, thus explaining why its collapse was inevitable.<\/p>\n

In the mid 1990s, Greece began to move towards participation in the European Monetary Union. In order to do so, the economic situation needed to shape up. Inflation fell<\/strong>, Greek banks began to borrow from the markets at lower interest rates<\/strong>, and so they began to lend at lower interest rates to businesses and households.<\/p>\n

Low interest rates, along with the capital that was injected into\u00a0the economy through\u00a0European Union structural funds<\/strong>, resulted in one thing: increased demand.<\/p>\n

This, in turn, led to a rapid increase in imports, while domestic products were either insufficient, or unable to compete with imported products. Inevitably, a significant increase in all prices followed<\/strong>. The value of property increased, as did the value of shares, salaries, and expenditure on pensions.<\/p>\n

At the same time, the economy was affected by a series of additional\u00a0crucial factors:<\/p>\n

    \n
  1. Tax revenues were not increasing at the same rate as prices, due to widespread tax evasion.<\/li>\n
  2. Exports were not increasing. Greek products were either more expensive than or inferior to foreign products, and therefore\u00a0non-competitive.<\/li>\n
  3. Investments were being made mainly in construction and infrastructure.<\/li>\n<\/ol>\n

    What happens in a country that spends more without a corresponding increase in revenue? Public debt begins to pile up.<\/p>\n

    In<\/span> 2008, when the global financial crisis erupted, Greece already had very high public debt relative to its GDP. Moreover,\u00a0while\u00a0its GDP was decreasing, the percentage of debt grew even larger. In 2009 it reached 127%.<\/p>\n

    Suddenly, the markets began to suspect that at some point Greece would not be able to repay its debt<\/strong>. To adjust for this risk, they began to lend at higher interest rates. While\u00a0uncertainty continued, interest rates also continued to increase, until at some point it became clear that Greece could not borrow any more money.<\/p>\n

    At this point, the - now infamous - troika was created so that Greece could borrow funds\u00a0in order to avoid bankruptcy, as long as it followed a series of conditionality agreements.<\/p>\n

    The memorandum years<\/strong><\/h2>\n

    G<\/span>reece was, of course, not the only country that received low interest loans from the troika, in order to commit\u00a0itself to a reform program. It was not the only country that signed a memorandum.<\/p>\n

    In contrast to other European countries that signed memoranda, Greece has still not managed to extricate itself.<\/p><\/blockquote>\n

    At the beginning of the crisis, Ireland (2010) and Portugal (2011) also signed a memorandum, as did Spain (2012) and Cyprus (2013). In contrast, Greece did not sign one but three memoranda, in 2010, 2012 and 2015. Also in contrast to these countries, Greece received amounts in excess of 300 billion \u2013 the largest loan in the history of mankind.<\/p>\n

    In contrast to these countries, Greece has still not managed to extricate itself from the memoranda.<\/p>\n

    In the six years of the memoranda, Greece has managed the largest fiscal adjustment in modern history.<\/em><\/p><\/blockquote>\n

    From 2009 to 2013, in just four years,\u00a0Greece\u2019s primary deficit of 10.2%<\/strong> of GDP became a primary surplus of 0.8%, an adjustment much higher than other members of the EU. Greece\u2019s current account deficit was in surplus for the first time since 1948. Imports fell by 10%, while exports rose by 11%.<\/p>\n

    Despite public discourse, structural reforms did actually happen. From 2007 to 2014, Greece was first among OECD countries in implementing reforms (also because it started from a very low point; from 2007 until 2009 basically\u00a0no reforms were undertaken).<\/p>\n

    However, these requirements for the country\u2019s sustainable performance did not come without a cost. From 2008 to 2013, the country\u2019s GDP decreased by 25%.<\/strong> Household disposable income was reduced by a third. The unemployment rate jumped from 7% to 27%, while 2\/3 of the unemployed are long-term unemployed.<\/p>\n

    During the last six years, the Greek economy has experienced a crisis the likes of which no other OECD member state has experienced during\u00a0peacetime. And it still isn\u2019t over.<\/p>\n

    What needs to be done to make sure these sacrifices have not been in vain?<\/p>\n

    diaNEOsis\u2019s study focuses on exactly this question: What should a new economic\u00a0model for Greece look like, and which\u00a0are the reforms that must be implemented to achieve\u00a0it?<\/p>\n

    What do we do now? <\/strong><\/h2>\n

    A<\/span>ccording to the study, the main problems the Greek economy is facing include:<\/p>\n