A New Growth Model for the Greek Economy : Requirements for Long-Term Sustainability

On June 3, 2015, the Greek Parliamentary Budget Office, the National and Kapodistrian University of Athens, the Democritus University of Thrace, and the University of Peloponnese sponsored an international conference to address medium- and long-term growth in Greece. This collection presents the strongest papers on the conditions required to revive and maintain economic growth. Leading experts cover almost every major issue identified in the latest literature, from demographic issues and proposals for export strategy to the need for innovation and structural reform. The combination of qualitative and quantitative approaches to assessing present conditions make this ground-breaking collection a valuable resource for a variety of academics, professional economists, and economic policy practitioners planting the seeds of Greece's future. List of Contributors—Short Bios 6 Acknowledgments 12 Contents 14 List of Figures 18 List of Tables 20 Chapter 1: On the Greek Growth Model: A Collective Contribution 22 1.1 The Timing and Subject of the Conference 22 1.2 The Elements of a Growth Model 23 1.3 The Selective Contribution 24 Part I: Greece and the European Union 40 Chapter 2: The EU and the Eurozone 41 2.1 Introduction 41 2.2 Currency Innovation: The Meaning of Currency Union 42 2.3 Minimizing Financial Vulnerability: Banking Union 43 2.4 Becoming More American: The Capital Markets Union 44 2.5 Shifting the Tax Base: Tax Union 45 2.6 Transfers Without Politics: Welfare Union 45 2.7 Common Projects: Energy Union 46 2.8 Common Projects: People Union 48 2.9 Common Projects: Military Union 49 2.10 Common Projects: Youth Union 49 2.11 Thinking Globally: Global Union 50 References 50 Chapter 3: The Greek Growth Decoupling 52 3.1 Introduction 52 3.2 The Growth Problems in Europe in the Aftermath of the Crisis 53 3.3 The Decoupling of Greece and the Rest of the EU Programming Countries 55 3.4 A Synthesis of the Various National Experiences 69 3.5 The Idiosyncratic Greek Growth Pattern 72 References 74 Part II: On the Greek Growth Model 77 Chapter 4: Is Greece Destined to Grow? 78 4.1 Introduction 78 4.2 Transition to a New Growth Model 79 4.3 Summary: Is Greece Destined to Grow? 87 References 88 Chapter 5: Lessons for Europe from the Greek Crisis 89 5.1 Introduction 89 5.2 A Bubble Economy 91 5.3 Supply Side: Growth Decomposition 91 5.4 Demand Side 93 5.5 The Adjustment 93 5.6 Competitiveness, Wages, and Prices 94 5.7 Structural Reforms’ Sequence 96 5.8 Conclusions 97 References 98 Chapter 6: Developing Growth Potential for the Greek Economy 99 6.1 Introduction 99 6.2 The Origins of the Fiscal Crisis and the Lack of a Broad Productive Base 102 6.3 The Failure of the Previous Adjustment Programs 103 6.4 The Failure of Supply-Side Reforms and the Wide Margins 104 6.5 The Assault on the Liquidity Buffer 108 6.6 What Can Be Done to Develop Growth Potential? 109 References 114 Chapter 7: Requirements for a New Business Model in Greece 115 7.1 The Unresolved Greek Crisis 115 7.2 Structural Weaknesses 116 7.3 Challenges of Global Competition 119 7.3.1 Greece’s Trade Integration 119 7.3.2 In Need of a New Business Model 122 7.4 An Unsustainable Debt 122 7.4.1 Sustainable Debt Within Reach? 123 7.4.2 How Much of a Haircut Would Be Required 123 7.5 How to Overcome the Crisis 124 7.5.1 Outsourcing of Reform Projects 125 7.5.2 Attracting Investors 125 7.5.3 Ending of Bailout 126 7.6 Concluding Remarks 127 References 127 Chapter 8: Is There an Easy Way Out? Redenomination Issues and Their Financial Consequences in Case of a Greek Exit from the Eurozone 130 8.1 Introduction 130 8.2 Literature Review 131 8.3 Exiting from the Euro: The Juridical Framework 132 8.4 “Grexit” Cost Analysis by Institutional Sectors 134 8.4.1 Methodology 134 8.4.2 An Evaluation of the “Grexit” Cost for the Non-­Financial Sector 138 8.4.3 An Evaluation of the “Grexit” Cost for the Domestic Banks 139 8.4.4 The “Grexit” Impact on the Greek Public Debt 141 8.4.5 The Default on TARGET2 Liabilities 146 8.4.6 Potential Internal Spill-Over Effects of the “Grexit”: The Magnitude of the Sovereign-Bank Vicious Circle 149 8.5 Conclusion 150 References 153 Chapter 9: Extroversion Within a New Economic Paradigm 155 9.1 Postmodern Globalization and the Regulatory Background 155 9.2 Export-Led Growth or Growth-Led Exports 158 9.3 The Hellenic Economy in the Contemporary Global Division of Labor 159 9.4 An Extroverted New Economic Paradigm 161 9.4.1 First Component 162 9.4.2 Second Component 163 9.4.3 Third Component 164 9.5 Concluding Remarks 165 References 166 Part III: Structural Changes and Labor Markets 168 Chapter 10: Qualifying and Quantifying the Greek Structural Reform Efforts 169 10.1 Introduction 169 10.2 Analysis 171 10.2.1 Structure of the Programme 172 10.2.2 Implementation of Structural Reforms 173 10.2.3 Timing and Composition of Reforms 175 10.2.4 General Government 180 10.3 Conclusions 180 References 183 Chapter 11: Innovation or ‘More of the Same’: A Crucial Choice for the Greek Society 185 11.1 Current Situation in Greece 185 11.2 Status Quo of the Greek Innovation System 189 11.3 An Agenda for Innovation in Greece 192 11.3.1 Establish and Develop New Research Institutes 193 11.3.2 Create Incentives for Researchers to Stay in or Come to Greece 193 11.3.3 Expand Research Clusters Based on Existing Specialization 194 11.3.4 Independence of Research Institutes 194 11.3.5 Strengthening Efforts to Cut Red Tape 195 11.3.6 Incentives for Regional and Local Authorities to Attract New Firms 195 11.3.7 Diaspora Policy 195 11.4 Conclusions 196 References 197 Chapter 12: Demographic Challenges Facing Long-Term Growth in Greece 199 12.1 Introduction 199 12.2 Working Age Population Decline 200 12.3 Growth Rates in the Era of Secular Stagnation 202 12.4 Path-Dependent Economic Dynamics 203 12.5 Is Labour Mobility the Most Desirable Adjustment Mechanism in the South? 206 References 210 Chapter 13: Rearranging Social Security Contributions: Alleviating the Burden of the State and Returning Value to the State and Society 212 13.1 Introduction 212 13.2 Concept Description 213 13.2.1 The Shift from Defined Benefit to Defined Contribution Pension Plans 213 13.2.2 The Contribution of Funded Pension Schemes to Growth 214 13.3 Background 215 13.3.1 Shifting from Defined Benefit to Defined Contribution Plans 215 13.3.2 The Contribution of Funded Pension Schemes to Growth 218 13.4 The Shift to a Funded Pension Scheme 222 13.4.1 Assumptions 223 13.4.2 Notation 224 13.4.3 The Methodology 226 Defined Contribution Scheme 227 Defined Benefit Scheme 227 Problem Solution 228 Numerical Application 229 13.5 The Contribution to Growth 230 References 233 Chapter 14: Okun’s Law in Greece in the Post-Crisis Era: An Empirical Study 236 14.1 Introduction 236 14.2 Okun’s Law in Greece after the Crisis of 2008 238 14.3 The Effect of Wage Reduction in Greece 240 14.4 Unemployment Forecasting and the Reaction of the Greek Economy 241 14.5 Summary and Conclusions 244 References 244 Chapter 15: The Influence of Flexible Working on Unemployment: Evidence from the Greek Labor Market 246 15.1 Introduction 246 15.2 Types of Flexible Working 249 15.2.1 External Flexibility 249 15.2.2 Internal Flexibility 249 15.2.3 Functional Flexibility 250 15.3 Flexible Working in Greece 250 15.3.1 Part-Time Jobs1 251 15.3.2 Job Sharing2 251 15.3.3 Special Forms of Employment3 252 15.4 Employment and Unemployment in Greece 252 15.5 Comparison of Flexible Working and Unemployment 255 15.6 Conclusions 256 References 258 Chapter 16: Jobs Not Growth: An Alternative Path for Development 261 16.1 Introduction 261 16.2 What Is the Nature of the Greek Crisis? 262 16.3 Why Structural Reform Is Not the Solution 264 16.4 Growth for Its Own Sake Is Not the Answer, Either 265 16.5 Direct Job Creation as an Alternative 266 16.6 Dealing with Greece’s Cross of Gold 268 References 270 Part IV: Macroeconomic Evolution and Export Performance 272 Chapter 17: The Determinants of Economic Fluctuations in Greece: An Empirical Investigation (1995–2014) 273 17.1 Introduction 273 17.2 Data and Methodology 274 17.3 Empirical Analysis 275 17.3.1 Subperiod 1995Q3–2003Q4 275 17.3.2 Subperiod 2005Q3–2011Q4 277 17.4 Conclusions 280 References 280 Chapter 18: Fiscal Multipliers and Growth in the Greek Economy: An Assessment of the Recent Fiscal Adjustment Program 282 18.1 Theoretical Predictions 282 18.2 Empirical Literature 283 18.3 Econometric Estimates 286 18.4 Assessment of the Recent Fiscal Adjustment Program 288 18.5 Concluding Remarks 290 References 292 Chapter 19: The Impact of Sovereign Debt Ratings and Financial Performance on Bank Ratings 295 19.1 Introduction 295 19.2 European Banking System’s Status 297 19.3 Credit Rating Agencies 299 19.4 Data and Variables 300 19.5 Methodology 304 19.6 Results 306 19.7 Discussion and Conclusions 309 References 310 Chapter 20: What Drives Greek Exports Performance? A Macrolevel Analysis 313 20.1 Introduction 313 20.2 Data and Methodology 316 20.3 Results 316 20.4 Conclusions 317 References 319 Index 320 Front Matter....Pages i-xx On the Greek Growth Model: A Collective Contribution....Pages 1-18 Front Matter....Pages 19-19 The EU and the Eurozone....Pages 21-31 The Greek Growth Decoupling....Pages 33-57 Front Matter....Pages 59-59 Is Greece Destined to Grow?....Pages 61-71 Lessons for Europe from the Greek Crisis....Pages 73-82 Developing Growth Potential for the Greek Economy....Pages 83-98 Requirements for a New Business Model in Greece....Pages 99-113 Is There an Easy Way Out? Redenomination Issues and Their Financial Consequences in Case of a Greek Exit from the Eurozone....Pages 115-139 Extroversion Within a New Economic Paradigm....Pages 141-153 Front Matter....Pages 155-155 Qualifying and Quantifying the Greek Structural Reform Efforts....Pages 157-172 Innovation or ‘More of the Same’: A Crucial Choice for the Greek Society....Pages 173-186 Demographic Challenges Facing Long-Term Growth in Greece....Pages 187-199 Rearranging Social Security Contributions: Alleviating the Burden of the State and Returning Value to the State and Society....Pages 201-224 Okun’s Law in Greece in the Post-Crisis Era: An Empirical Study....Pages 225-234 The Influence of Flexible Working on Unemployment: Evidence from the Greek Labor Market....Pages 235-249 Jobs Not Growth: An Alternative Path for Development....Pages 251-261 Front Matter....Pages 263-263 The Determinants of Economic Fluctuations in Greece: An Empirical Investigation (1995–2014)....Pages 265-273 Fiscal Multipliers and Growth in the Greek Economy: An Assessment of the Recent Fiscal Adjustment Program....Pages 275-287 The Impact of Sovereign Debt Ratings and Financial Performance on Bank Ratings....Pages 289-306 What Drives Greek Exports Performance? A Macrolevel Analysis....Pages 307-313 Back Matter....Pages 315-339