Greece's Sudden Faltering Economy: From Boom to Bust with Special Reference to the Debt Problem

Papers in International Political Economy, 2012, Forthcoming

42 Pages Posted: 12 Apr 2012  

Theodore Pelagidis

University of Piraeus; Brookings Institution

Evangelia Desli

Aristotle University of Thessaloniki - School of Economics

Date Written: April 12, 2012

Abstract

In this paper, we deal with theoretical propositions and empirical evidence that are needed to explain the paradox of rapid GDP growth in the face of the dismal competitiveness of the Greek economy during 1995-2008. We show how Greece’s economy structural weaknesses have hit the domestic economy and we investigate their impact on the current turmoil of the economy. We show that the previous favourable global economic environment acted as a locomotive to domestic growth, and now that it is gone, structural problems of poor governance, low competitiveness and a ballooning public deficit and debt, have come to the surface. Also, in the context of debt sustainability we look at the recent actions to reduce debt that are taken by the Growth and Stability Program. We construct five scenarios regarding the level of public debt at the end of the 2011-2015 period that is commonly accepted that Greece will return to global financial markets to finance its debt. We find that only under a very optimistic scenario of robust growth of the economy based on structural and institutional reforms that boost productivity, significantly improve competitiveness, and boost the financial sector as described in the Growth and Stability Program along with a successful privatization of 50 billion euros the public debt to gdp ratio can reach the 60% threshold that the financial markets find comfortable. We offer a specific explanation of the current unfortunate state of the economy and we briefly suggest avenues of necessary progressive reforms to overcome it.

Keywords: Macroeconomy and Institutions, Competitiveness, The Greek Economy

JEL Classification: D020, E020, E300, E660

Suggested Citation

Pelagidis, Theodore and Desli, Evangelia, Greece's Sudden Faltering Economy: From Boom to Bust with Special Reference to the Debt Problem (April 12, 2012). Papers in International Political Economy, 2012, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2039002

Theodore Pelagidis (Contact Author)

University of Piraeus ( email )

21 Lambraki street
80 KARAOLI & DIMITRIOU STREET
Piraeus, Attiki 18533
Greece
+3021 04142526 (Phone)
+3021 4142571 (Fax)

HOME PAGE: http://www.maritime-studies.gr/index.php?option=com_comprofiler&task=userProfile&user=95&Itemid=183

Brookings Institution ( email )

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

HOME PAGE: http://www.brookings.edu/experts/pelagidist

Evangelia Desli

Aristotle University of Thessaloniki - School of Economics ( email )

Thessaloniki, 54124
Greece

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