Greece in the Eurozone: Lessons from a Decade of Experience

45 Pages Posted: 24 May 2012 Last revised: 12 Jun 2012

Elisabeth Oltheten

University of Illinois at Urbana-Champaign - Department of Finance

Theodore Sougiannis

University of Illinois at Urbana-Champaign - Department of Accountancy

Nickolaos G. Travlos

University of Surrey; ALBA Graduate Business School

Stefanos Zarkos

Athens Laboratory of Business Administration (ALBA)

Date Written: May 24, 2012

Abstract

This study examines Greece’s experience as a member of the Eurozone over the period 2002 to 2011. We do not find evidence of incremental benefits for Greece from joining the Eurozone in terms of higher growth in Gross Domestic Product, improved balance of payments, higher levels of public and private investments, higher levels of employment, and lower inflation relative to the prior ten years. In evaluating the Greek experience within the Eurozone, we derive the following fundamental policy lessons that apply both to similar small peripheral EU countries that plan to enter the Eurozone, or any other economic union, and to the Eurozone itself, in terms of facilitating their integration in a large monetary union. First, countries with inefficient public systems must re-engineer and restructure the decision making process in the public sector before they become members of an economic union. Second, countries must generate a friendly environment towards business and provide a) a simple and stable tax system, b) an effective and efficient justice system, and c) a high quality educational system. Third, countries with governments following populist fiscal policies financed by excessive borrowing are likely to lose their competitiveness which in turn lowers the living standards of their people. Fourth, the admission requirements to an economic union must be strict and they must be enforced. Sixth, capital market investors must always differentiate default risk within the country-members of a monetary union.

Keywords: Greece, European Union, Euro, European Debt Crisis

JEL Classification: F15, O52, P52

Suggested Citation

Oltheten, Elisabeth and Sougiannis, Theodore and Travlos, Nickolaos G. and Zarkos, Stefanos, Greece in the Eurozone: Lessons from a Decade of Experience (May 24, 2012). Available at SSRN: https://ssrn.com/abstract=2066125 or http://dx.doi.org/10.2139/ssrn.2066125

Elisabeth Oltheten

University of Illinois at Urbana-Champaign - Department of Finance ( email )

440 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States
217-333-9128 (Phone)

HOME PAGE: http://www.business.illinois.edu/oltheten/

Theodore Sougiannis (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

360 Wohlers Hall
1206 South Sixth Street
Champaign, IL 61820
United States
217-244-0555 (Phone)
217-244-0902 (Fax)

Nickolaos G. Travlos

University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

ALBA Graduate Business School ( email )

Athinas Ave. & 2A Areos Str.
Vouliagmeni 166 71, Athens
Greece

HOME PAGE: http://www.alba.edu.gr

Stefanos Zarkos

Athens Laboratory of Business Administration (ALBA) ( email )

Athinas Ave. & 2A Areos Str.
Vouliagmeni 166 71, Athens
Greece

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