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The Greek Crisis

Schrader, K., C.-F. Laaser and D. Benček (2017)
Kiel Policy Brief 103
Greece still in the Crisis Mode
For eight years, Greece has remained in the crisis mode but the rescue from economic decline is still not yet within sight. In their Kiel Policy Brief 103 the Kiel Institute’s researchers Klaus Schrader, Claus-Friedrich Laaser und David Benček highlight the Greek prospects to overcome the crisis by until the end of the third economic assistance program. They show that in other EU crisis countries the programs have more or less achieved their goals while in Greece the missing ownership by the Greek decision makers and the Greek society has become a serious obstacle to the reform process. As a consequence, growth expectations have not been met and the sluggish recovery and the backward-oriented structural change do not promise a return to the former high income level of the past. The authors still regard the third assistance program as a great opportunity for Greece to overcome the crisis but the program will not work without the development of ownership.

Schrader, K., D. Benček and C.-F. Laaser (2016)
Requirements for a new Business Model in Greece
Petrakis, P. (Ed.), A New Growth Model for the Greek Economy: Requirements for Long-Term Sustainability. Palgrave Macmillan, New York
The authors Klaus Schrader, David Benček and Claus-Friedrich Laaser analyze Greece’s present business model and its deficiencies as well as the sustainability of the Greek debt burden. They conclude that the reform process is a necessary condition for structural change and economic recovery. Its completion and the promotion of private investment would accelerate the reconstruction of the Greek economy significantly. In addition, a strongly conditioned haircut or a phasing out of the Greek debt burden is inevitable to render Greece’s public debt sustainable and to end the ongoing bail-out process. The authors recommend discontinuing additional financial assistance to Greece in return and restoring its status as an ordinary member of the EU and the Euro-Group. The country would have full access to existing stabilization mechanisms but at the same time would have to observe the rules of the stability and growth pact and to accept EU economic policy coordination.

Schrader, K., D. Benček and C.-F. Laaser (2016)
Saving Greece once again: Have we Reached the Root of the Crisis?
Quarterly Journal of Economic Research Vol. 84, No.3
The Kiel Institute’ s researchers Klaus Schrader, David Benček and Claus-Friedrich-Laaser analyze the economic development in Greece against the backdrop of the third economic adjustment program. The authors reveal that Greece neither overcame its structural weaknesses nor developed export industries as a driver of growth in the course of reforms. They conclude that Greece’s sectoral structures still mirror a low level of industrial development and its service industry suffers from a below-average growth performance compared to other EU countries. The analysis also shows that without significant growth, the Greek debt will remain unsustainable. However, in the authors’ opinion a haircut or a phasing out of the debt burden can only complement supply-oriented structural reforms. The Memorandum of Understanding of August 2015 comprises a suitable reform agenda although it raises a feeling of déjà vu and also raises severe doubts that the Greek decision makers and their administration possess the political will and the capability to implement the reforms without large-scale external pressure and support.

Schrader, K., D. Benček and C.-F. Laaser (2016)
Griechenlands erneute Rettung: endlich erfolgreich?
Quarterly Journal of Economic Research Vol. 84, No. 4
In 2010, the first economic adjustment program began offering a blueprint for economic recovery and a feasible way for Greece to emerge from the crisis. The Kiel Institute’s economists Klaus Schrader, David Benček and Claus-Friedrich Laaser show that Greece neither overcame its structural weaknesses nor developed export industries as a driver of growth in the course of reforms. They conclude that Greece’s sectoral structures still mirror a low level of industrial development as well as a service industry with a below-average growth performance compared to other EU countries. Greece’s composition of exports is similar to the export patterns of low-income countries due to a focus on raw materials and labor-intensive goods. Their analysis also shows that without significant growth, the Greek debt will remain unsustainable. A haircut or a phasing out of the debt burden can only complement supply-oriented structural reforms, however. To fulfil the requirements of the Memorandum of Understanding from August 2015 Greece also needs a broad range of external expert knowledge because the Greek public administration itself  is a subject of reform.

Boysen-Hogrefe, J., S. Fiedler, K.-J. Gern, D. Groll, P. Hauber, N. Jannsen, S. Kooths, R. Langhammer, M. Plödt, G. Potjagailo, U. Stolzenburg, and M. Wolters (2015)
Zwischen GREMAIN und GREXIT: Euroraum in der Bewährungskrise
Kiel Policy Brief 90
Improving institutions to stimulate entrepreneurial action and investment is key for prosperity and growth in Greece. Without better institutions no other policy measures can improve the situation for the Greece population on a sustainable basis. As the current Greece government has clearly communicated it disagrees with the institutional reforms suggested by their foreign creditors; such reforms, therefore, would be doomed to fail due to the lack of ownership of the current government. The Eurosystem can protect itself from misuse of any country by implementing appropriate collateral requirements and by not extending ELA funding. Greece does not necessarily have to leave the euro area even when it is defaulting but would face a very tight monetary regime. However, a disordered exit from the euro area would be a dangerous and risky experiment for the country and would be very difficult to implement.

Boysen-Hogrefe, J., and U. Stolzenburg (2015)
Rettungsprogramme und "Ownership" – Irland, Portugal und Griechenland im Vergleich
Wirtschaftsdienst 95(8)
While euro area adjustment programmes in Ireland and Portugal were successfully completed – more or less in accordance with projections – the second adjustment programme for Greece failed, with substantial deviations between target fi gures and economic reality. To determine causes for the success or failure of adjustment programmes, the authors compare the three countries with regard to the economic and political environment, programme intensity and “ownership”. They also discuss the role of political uncertainty in the widely discussed under-estimation of fi scal multipliers and in the Greek crisis of 2015. Finally, the authors address possible implications for the future design of rescue mechanisms in the euro area.

Fiedler, S., and S. Kooths (2015)
Griechenland – zwischen Insolvenz und Schuldenerlass
Wirtschaftsdienst 95 (4)
Greece was granted a third bailout package by its European partners, although it is unclear whether Greece will be able to keep its reform commitments. Because Greece’s debt is now held primarily by the eurozone public sector, any concessions on credit terms constitute fiscal transfers between the countries involved.

Schrader, K. (2015)
Austeritätspolitik in der Europäischen Währungsunion: Bilanz und Perspektiven
Wirtschaftsdienst 95 (4)
The economic adjustment programs by the euro group and the IMF proved to be successful in the majority of the euro crisis countries because they went far beyond macroeconomic stabilization by fostering the implementation of structural reforms. It is Greece where the lack of political will and the lack of a functioning administration obstruct the reform process which is complementary to austerity policy.

Schrader, K., D. Benček, and C.-F. Laaser (2015)
The Final Act of the Greek Tragedy ahead?
Kiel Policy Brief 89
In their Kiel Policy Brief 89 the Kiel Institute’s researchers Klaus Schrader, David Benček and Claus-Friedrich Laaser analyze the tense economic situation and the insufficient reform policy in crisis-ridden Greece. They argue that Greece’s public debt is no longer sustainable and make proposals how to overcome the debt crisis. The authors emphasize that in Greece structural reforms are indispensable by all means and that the creditors should support the reform process more actively. The permanent break of rules by the Greek policy should no longer be tolerated to safeguard the proper functioning of the Euro area and the European Union as a whole. They advise against a rescue of Greece without strict requirements for further reforms to prevent the creation of a transfer mechanism and disincentives in other crisis countries.

Schrader, K., D. Benček, and C.-F. Laaser (2015)
Greece: How to Take a Turn for the Better
Kiel Policy Brief 83
Against the backdrop of the Greek parliamentary elections of January 2015 the Kiel Policy Brief 83 answers the question whether the Greek economy is recovering from the deep economic crisis and, particularly, whether the country has made any progress towards structural change. The IfW researchers Klaus Schrader, David Benček and Claus-Friedrich Laaser analyze Greece’s economic potential and evaluate whether Greece’s public debt may be sustainable. The results of their analysis are rather pessimistic: Greece still lacks a new business model that could generate sustainable economic growth. The reform process has to be sped up and professionalized significantly. In the authors’ opinion a further haircut in favor of Greece seems inevitable, but with the qualification of a restricted fiscal sovereignty and the omission of further bailout packages.

Schrader K., D. Benček and C.-F. Laaser (2013)
Greece: Back on Track?
Kiel Policy Brief 68
The Kiel Policy Brief 68 answers the question whether the Greek economy is recovering from the deep economic crisis and, particularly, whether the country has made any progress towards structural reforms as propagated by European policy makers. Against the background of Greece’s economic potential the IfW researchers Klaus Schrader, David Benček and Claus-Friedrich Laaser also analyze whether Greece’s public debt is sustainable as presumed by the troika. The results of their analysis are rather pessimistic: Greece still lacks a new business model that could generate sustainable economic growth. The reform process has to be sped up and professionalized significantly. In the authors’ opinion a further haircut in favor of Greece seems inevitable, but with the qualification of a restricted fiscal sovereignty and the omission of further bailout packages.

Schrader, K., D. Bencek and C.-F. Laaser (2013)
Greece: Doing well again?
Kieler Diskussionsbeiträge 522/523
The Kiel Economists Klaus Schrader, David Bencek and Claus-Friedrich Laaser answer the question whether the Greek economy is really doing well again and whether the country has actually progressed in the field of structural reforms as propagated by European policy makers. The result of their analysis is that Greece still lacks a new business model that could generate sustainable economic growth and that the reform process has to be significantly speeded up and professionalized. In the authors’ opinion a further haircut is inevitable but only with the qualification of a restricted Greek fiscal sovereignty and the omission of further bailout packages.

Snower D., J. Boysen-Hogrefe, K. Gern, H. Klodt, S. Kooths, C.-F. Laaser, C. Reicher, B. Roye, J. Scheide and K. Schrader (2013)
The Kiel Policy Package to Address the Crisis in the Euro Area
Kiel Policy Brief 58a.
The reason why the Euro zone crisis has dragged on for so long is that Europe's leaders have focused too much on short-term measures to patch up the emergency of the moment, rather than formulating a comprehensive plan. The Kiel Policy Package - published as Kiel Policy Brief 58a - comprises a set of short-term and long-term policy measures to overcome the crisis. Neither the short-term nor the long-term measures are sufficient on their own. Instead, they need to be implemented in conjunction with one another.

Klodt, H. (2012)
Griechenland: Schuldenrückkauf für noch mehr Schulden
Wirtschaftsdienst 92 (12)

Schrader, K., und C.-F. Laaser (2012)
Will Portugal Turn into a Second Greece?
Kiel Policy Brief No 42
Portugal’s deep economic crisis gives rise to the expectation that the country will turn into a second Greece. The Kiel economists Klaus Schrader and Claus-Friedrich Laaser analyze, whether this expectation is well founded or not. Their analysis of the crisis in Portugal shows that Portugal has a better chance of avoiding economic collapse than Greece. It is up to the Portuguese government to improve economic conditions by far-reaching structural reforms.

Schrader, K., and C.-F. Laaser (2012)
The Crisis in Southern Europe and Fears of a Domino Effect: Subjecting Greece, Portugal and Spain to a Crisis Test
Kiel Discussion Paper 500/501
Many think that a Greek bankruptcy could have a domino effect on other Southern European countries such as Portugal and Spain.  The Kiel Institute economists Klaus Schrader und Claus-Friedrich Laaser examine the economic causes of the crises in Greece, Portugal, and Spain in their  Kiel Discussion Paper. They compare economic developments in these three countries and find that there is little reason, from a real economic perspective, to expect that there will be a domino effect.

Benček, D., and H. Klodt (2011)
Fünf Prozent sind (zu) viel
Wirtschaftsdienst 2011 (9)
Greece’s solvency problems have seemingly been resolved by the Euro Area governments and private sector investors on July 21. According to their resolutions, more than €100 billion will be provided in order to enable the Greek government to refinance its debt. But even so, bankruptcy has not been prevented for good. To demonstrate this result, the authors use the concept of a fiscal primary surplus to analyze Greece’s public finances as well as other Euro Area countries who are currently struggling with their debt.

Boysen-Hogrefe, J. (2011)
Für einen Schuldenschnitt und gegen den Rettungsschirm? Argumente auf den Prüfstand
Kiel Policy Brief 29
The regulations on the safety net for the euro are often criticized for its incentives for debtors. However, currently high government bond spreads can be observed. There is no sign that the safety net evens out risk differences. Thus, the main argument against the safety net may be exaggerated.

Baumgarten, M. and H. Klodt (2010)
Greece and Beyond: The Debt Mechanics of the Euro
The Swiss Review of International Relations 65 (4), Zürich: Rüegger
In the wake of the financial crisis in Europe, much blame has been cast on the so called PIGS-states for their eager accumulation of national debt. But neither are the PIGS-states the sole culprits of their catastrophic situation, nor is their level of national debt the true source of misery. The paper by Martin Baumgarten and Henning Klodt provides evidence that debt accumulation by the poorer states is to a certain extend predetermined by the “debt mechanics” in a currency union. Whether this effect leads into a “debt trap”, is determined by the use of the deficit-financed government spending. Once a state is caught in the debt trap, rigorous austerity measures at home are needed to regain international competitiveness.

Baumgarten, M., and H. Klodt (2010)
How the EU Currency Union Fostered the Greek Debt Crisis
Wirtschaftsdienst 90 (6)
The EU currency union involves a debt mechanism that has virtually inevitably raised Greece’s and other EU countries’ debt. The study by Matthias Baumgarten and Henning Klodt has found that a poor understanding of how this mechanism works and clientele politics have led these countries into the debt trap, causing their debt to increase continually and their competitiveness on international markets to decrease.

Boysen-Hogrefe, J. (2010)
Ist Griechenland noch zu retten? Und der Euro?
Kiel Policy Brief No 19

Schrader, K., and C.-F. Laaser (2010)
Causes of the Greek Tragedy
Wirtschaftsdienst 90 (8)
The EU saved Greece from bankruptcy because it deemed Greece’s problems had been caused by the global economic and financial crisis and would thus be of a temporary nature. Klaus Schrader und Claus-Friedrich Laaser prove that Greece has been living beyond its means for a long time. They also make suggestions as to how Greece can solve its problems on its own.

Center

Henning_Klodt

Prof. Dr. Henning Klodt
Head
henning.klodt@ifw-kiel.de

Klaus_Schrader

Dr. Klaus Schrader
Deputy Head
klaus.schrader@ifw-kiel.de

Economic Policy Center
The Purpose: Promoting the visibility of the Kiel Institute in the public,  stimulating the policy debate within the institute.  

Team
Prof. Dr. Henning Klodt
(Head)
Dr. Klaus Schrader
(Deputy Head)
Margitta Führmann
Dr. Claus-Friedrich Laaser
Prof. Dr. Rolf J. Langhammer 
Dr. Astrid Rosenschon

The Greek Crisis

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