Greece: A Case Study of Myths and Development Periklis Gogas - - PDF document

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Greece: A Case Study of Myths and Development Periklis Gogas Assistant Professor of Economic Analysis and International Economics Department of Economics Democritus University of Thrace 1 Sections The reality Myths and reality

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Greece: A Case Study of Myths and Development

Periklis Gogas Assistant Professor

  • f Economic Analysis and International Economics

Department of Economics Democritus University of Thrace

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Sections

  • The reality
  • Myths and reality
  • The Greek competitive advantage
  • Entrepreneurship

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CASE STUDY GREECE

SWOT Analysis

  • Internal environment:
  • Strengths
  • Weaknesses
  • External environment:
  • Opportunities
  • Threats
  • Strategies:
  • Strengths to Threats
  • Opportunities to Weaknesses

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Production Capacity Utilization

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GDP Growth Rate

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Per Capita Income

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Unemployment Rate

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Change in Retail Sales

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10 Year Bond Return

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The Debt Problem

  • Is the debt something new?
  • When did the problem start?
  • How did it progress?
  • Is ¡ti ¡something ¡that ¡shouldn’t ¡be ¡concerning ¡

Greek governments in the decades before the crisis?

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The Situation Before the Crisis

The Good News

  • Stable GDP growth rates
  • High production capacity utilization
  • Low unemployment

The Not so Good News

  • A high debt rate as % of GDP
  • High deficits as % of GDP
  • Increasing trend for both

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Greek Public Debt

  • World ranking of public debt in 2012

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Greek Public Debt

  • World ranking of public debt in 2000

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Analysis of Current Debt

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IMF 27.9 3.83 Memorandum 1 52.9 0.81 EFSF 133.0 1.55 Central Banks 9.3 4.80 Private sector in PSI 29.5 2.00 Private sector non-PSI 3.0 4.70 Treasury bills 15.0 4.20 ECB 28.0 4.75 European Inv. Bank 7.0 3.00 Bank of Greece 5.0 0.50 Other (guarantees, etc) 11.4 4.00 Total 322.0 2.29

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Myths and Realities for Greece

  • The myth for the Mexican: lazy, siesta

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Myths and Realities for Greece

  • The myth for Greeks: lazy, laid back

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Myths and Realities for Greece

  • Myth: The lazy Greeks
  • Reality:
  • According to OECD data Greeks are the hardest

working!

  • Greeks work an average 50% more than Germans!

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Μύθοι ¡και ¡Αλήθειες ¡για ¡την ¡Κρίση

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Greece!

Real annual working hours in OECD countries

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Myths and Realities for Greece

  • Myth: reduction in wages to increase competitiveness
  • Reality:
  • Labor costs represent only 5-10% of the final price in Greece
  • Most important costs and impediments according to

business people:

Taxes, tariffs and other indirect costs Bureaucracy Corruption Scarcity in R&D funding

  • Labor cost is not the key factor
  • Germany, Sweden, Canada: high wages and high

productivity

  • Bulgaria, Albania, Romania: low wages, low productivity

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Myths and Realities for Greece

  • High productivity countries:
  • Germany, Sweden, Canada, Japan

is this due to low wages?

  • Low productivity countries:
  • Bulgaria, Albania, Romania

is this a result of high wages?

  • Something ¡doesn’t ¡add-up…!

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Myths and Realities for Greece

  • Myth: “The ¡return ¡to ¡the ¡drachma”
  • Reality:
  • There is no return!
  • It will be a new currency no matter how we call it!
  • It is not the euro to blame for this debt crisis!
  • Huge debt increase in the drachma era
  • Stable debt after the adoption of the euro

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Myths and Realities for Greece

  • Public debt as % of GDP and prime ministers

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DRACHMA EURO

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Myths and Realities for Greece

  • Myth: the ’50s-’60s growth was due to the drachma
  • Reality:
  • Huge growth rates for Greece: 6-7%
  • But:
  • Drachma was not a free float: it was pegged to the USD with

a constant rate GRD 30 / 1 USD

  • Bretton Woods was similar to the euro today
  • No independent monetary policy
  • Growth was due to:

Monetary stability Minimum inflation Minimum deficits Capital inflows as a result of monetary and fiscal stability

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Myths and Realities for Greece

  • Myth: Iceland recovered after the default
  • Reality:
  • Was not a public debt crisis but a banking sector one
  • Applied to join the Eurozone.
  • Considered to adopt the Canadian dollar.

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Myths and Realities for Greece

  • Myth: Argentina is better off after ousting the IMF
  • Reality:
  • It closely cooperates with the IMF
  • Argentina: €70 billion
  • Greece: €360 billion
  • 30% of ¡Argentina’s ¡citizens ¡lives ¡below the poverty line
  • The middle class has disappeared
  • The national currency has depreciated to 1/5
  • Inflation high: at 22%

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Myths and Realities for Greece

  • Myth: Greece must become self-sufficient
  • Reality:
  • Self-sufficiency = poverty and low standards of living
  • Adam Smith: absolute advantage
  • David Ricardo: comparative advantage
  • With specialization everyone consumes more
  • No country in the world targets self-sufficiency!

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Myths and Realities for Greece

  • Myth: the Greek comparative advantage is agriculture
  • Reality: probably not!
  • If ti was there would be no need for subsidies
  • Subsidies are needed because we are not competitive!
  • Small farms and mountainous terrain
  • Without the subsidies Greek agricultural products would have

been very expensive for the consumers.

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Myths and Realities for Greece

  • Myth: Greece is a poor country
  • Reality: No!
  • Greece is designated by OECD and other organizations as

a developed industrialized country.

  • It is one of the 25 richest countries in the world.
  • Before the crisis it was among the first 20 richest.
  • In Human Development Indices that measures security,

education, health and equality it ranks among the 20 highest countries.

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Myths and Realities for Greece

  • Greece’s ¡comparative ¡advantage ¡is ¡the ¡educational

level.

  • Technology and Research: Greek universities rank

9th in the world

  • Greece exports more Space Technology than

tomatoes.

  • Agriculture represents a mere 2% of Greek GDP
  • High technology exports represent 12,3% of the

total and chemical industry exports 31,6%.

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Research and Technology

  • 38th in R&D funds
  • 19th in total scientific publications
  • 13th in most important scientific publications
  • Better than:
  • Italy, Canada, Spain, France, etc.
  • 0.6% of the GDP is spent for research
  • 1,9 is the rate for France
  • 1,8% for Canada
  • 1,3% for Spain
  • 1,1% for Italy

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Research and Technology

Source: Nature 2012

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Billion $ for research Ratio to Greece Scientific Publications $ per publication Relative Productivity Canada 24.3 14.29 51107 475,473.03 2.60 Italy 19.0 11.18 48353 392,943.56 2.15 France 42.2 24.82 57320 736,217.73 4.02 Spain 17.2 10.12 44935 382,775.12 2.09 Greece 1.7 1.00 9281 183,169.92 1.00

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Research and Technology

  • M.I.T.:
  • 2.22% of professors are Greek
  • Percentage of Greek population in the

world: 0,16%

  • 14 times higher representation in MIT

faculty than Greek population suggests.

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Research and Technology

  • From ¡the ¡European ¡Commission’s ¡“Report ¡

for Innovation in Europe 2011” ¡we ¡get:

  • Greece 4.2 researchers per 100 workers
  • European average 6.3.
  • But the production of scientific publications

compares to the European average (438 and 491 respectively)

  • Top publications: Greek are significantly

higher than the average.

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