The strategic failure in the approach to deal with the problems of the Greek economy, namely the disproportionate internal devaluation of the private sector and the tax base with respect to the milder internal devaluation of the government expenditure , has certainly taken place in the context of a country that was asked to undertake one of the most difficult adjustments made by any country and through a deal that appeared to be ignoring important warning signs (Mitsopoulos and Pelagidis 2011; Pelagidis and Mitsopoulos 2014). Essentially, the 2010 and onward sequential deals amounted to agreeing with the political leadership and the administration of an economy that has been turned by the former into a quasi-Soviet economy at the fringes of free markets, that they will tear down the bureaucracy they have established for over 30 years, while being offered the cash and support to keep operating largely in a “business as usual” environment.
It is within such a context that there were few apparent efforts to shift the balance in favor of the productive sector of the economy as a necessary precondition for success. The lack of such an effort has been paired, after 2010, with a number of other unfortunate policy choices, both by the Greek government and by the creditors, the International Monetary Fund (IMF ), the European Central Bank (ECB ), and the Europeans. These have further burdened the prospects of the private sector even as they kept the profligate state on life support for at least three years. In particular, these are (a) the gradual entrenchment of macroeconomic imbalances as a permanent situation, (b) the delayed Private Sector Involvement (PSI ), and the large PSI of October 2011, as outlined in the respective Euro Area Summits statements, and (c) the uncertainty that stems from tying the European prospects of the whole of Greece with the insufficient willingness of the government to implement the agreed program . Overall, the above listed has managed to add to the private sector of the economy, in addition to the burden of persisting fiscal problems and competitiveness deficit, the impact of a full-blown liquidity crisis. So, the question that springs in mind after all this policy failure is identical with the title of this book Who’s to Blame for Greece and, more importantly, what lessons can we learn for the future from the failures of the past?
In this context, the first part of the book sets the theoretical context in which Greek policymakers , politicians, and the public opinion matured the decision to adhere to the single currency . In this setting, in Chap. 2, we briefly present the relevant debate in the literature concerning the costs and benefits of joining a currency union. This is necessary to examine the impact of the fundamental discussion that took place 20 years ago in the country on the costs and benefits of getting rid of the drachma and join the euro area as well as to understand both the constraints and the opportunities that Greece’s economy has faced in the last five recession years.
In Chap. 3, we elaborate and analyze for the very first time in the relevant literature, material that reviews what economic theories and narrative shaped the understanding of Greek policymakers and politicians about costs and benefits for Greece to join the single currency . We then match this narrative with the declared policy strategy, and its implementation, by the government that introduced the Maastricht Treaty for ratification, in order to investigate the extent to which its conviction that Greece could succeed in entering on equal terms as a constructive member country was well founded.
In Chap. 4, we examine the IMF Director’s, and supporting staff, reports on Greece from 1990 on, as well as the European Council recommendations to Greece and the preceding European Commission recommendations to the Council . We present these in order to place them in context with the key issues raised in Chap. 3, as well as with the recent developments in Europe and the country.
The central aim of the second part and originally of Chap. 5 is to reconsider the troika period, focusing especially on the first three years of the program , where the policy is supposed to have either failed and/or faced significant headwinds. We initially focus on the Greek public finances and debt. We analyze conditions that led to the first Memorandum of Understanding (MoU) and what it initially provided. We follow the implementation of the MoU and the fiscal strategy involved in it. We focus in particular on the equilibrium between the opposition to reform and the nexus of state-sponsored privileges in the country. In the end, this analysis and the supporting facts are contrasted with the criticalities emerging from the ex post analysis of surveillance reports of international organizations and the other materials from Chaps. 3 and 4.
In Chap. 6, we assess the intentions of the government that ratified the Maastricht Treaty in view of the current developments and place the developments in Greece within a broader context of European policies and approaches. In particular, we assess the experience of Greece and other European countries that implemented at the same time structural and fiscal reforms, and compare them with the impact of the one-sided implementation of the conditionality program in Greece after 2010. We also attempt a preliminary assessment of where this one-sided implementation has led the country, and what can be done from now on.
In the third part of the book, Chap. 7 assesses the results on the critical domain of exports. In particular, it explains the reasons that the internal devaluation failed to kick-start an export-led growth. It focuses on employment and wage earnings and reveals the real costs that made exports grow, albeit at an insufficient pace.
As is widely known, the populist Prime Minister A. Tsipras made a 180° U-turn in the summer of 2015 and reached an agreement —a third bail-out program—with the creditors, substantially surrendering to their demands. At the time, we called that deal “reform austerity ,” arguing that substantial preconditions for a viable solution were well in place this time. In particular, we emphasized that the Europeans seemed now to be determined to use the “reforms for money” method, meaning that to get the bail-out money Greece had to first implement the measures agreed upon.
We decided to proceed to a second edition of the book since almost two years have passed after the third program agreement and the first two out of five critical evaluations have been successfully accomplished, albeit with a delay of almost 20 months. In this context, we extensively revised Chap. 8 and revised slightly Chap. 9. We also added a Part IV to the book—Chaps. 10 and 11—to cover the 2015–2017 period, focusing on the disastrous impact of populist politics on the economy, covering and evaluating the implementation of the third program still in process.
So, Chap. 8 has been extensively rewritten. It now provides a detailed analysis of bottlenecks that have to be removed if the nonperforming loan (NPL) problem is to be unwound in a productive way, while making Greece a more attractive place for foreign capital and talent that wants to contribute to the restructuring of the Greek corporate landscape in a way that is balanced with Greek capital and talent. The pivotal role of the tax system in the ability to strike this balance is also elaborated on, and linked with the ability of Greece to repair, and extend, the middle ground of the corporate landscape, and to fill the gap among larger companies that has historically been missing. Such an approach, it is argued, should also be linked with a reduction in nonproductive taxes, especially on salaried labor in the private sector and working families. It is, thus, directly linked with the long-term growth prospects of the country, a mitigation of the speed at which the country ages, solidifying, ultimately, the ability of the country to repay its official debts.
Chapter 9 addresses the issue of institutional reforms for the euro area itself, elaborating on the notion and a project for a closer and more democratic union to heal economic asymmetries . This is critical for the southern euro area member states and especially for the weakest economy among them, Greece, if it is to get its economy back on track and recover.
The fourth part is a completely new addition in the second edition of this book. Chap...