This web site is dedicated to the macroeconomics and the underlying politics of the evolution of the Greek economy, since the accession of the country in the European Economic Community (EC) and the subsequent accession to the euro area. It reviews the past, tracks the present and suggests ways forward.
One can discern four 10 year economic policy cycles in Greece’s path since EC accession.
The first cycle spanned the 1980s, following accession to the EC, trade liberalization and the adoption of a macroeconomic policy mix characterized by expansionary fiscal, incomes and monetary policy. This led to stagflation, a rise in public debt and periodic balance of payments crises.
The second cycle, the 1990s, saw successive Greek governments adopt adjustment and convergence programs to address the accumulated imbalances and ensure participation in the process of Economic and Monetary Union (EMU). The adjustment and convergence programs of the 1990s implied a partial U-turn in macroeconomic policy, but the approach was too gradualist and ultimately inadequate, while the policy mix remained unbalanced. Greece managed to gain entry into the Euro area at the end of this cycle, but many of its fiscal and competitiveness issues had not been tackled.
The third cycle began in the beginning of the new millenium, following entry into the euro area. It was marked by a low inflation and interest rate environment and a immediate loosening of fiscal policy. This led to a decade of macroeconomic euphoria, marked by high growth rates, financed by external borrowing, and a gradual reduction in the unemployment rate with inflation remaining low.
The fourth cycle followed the international financial crisis of 2008-09, which led to a “sudden stop” in international lending to Greece, and successive bailout programs. The policy reversal that was imposed on Greece led to the adoption of an externally imposed front loaded fiscal adjustment program in an environment of financial repression, which resulted in the longest and deepest recession of the post war period. The last bailout program officially ended in 2018.
The current challenge for the Greek economy is to adopt a policy mix which will allow for a modest but sustained recovery within the confines of the euro area, without the reappearance of external imbalances. The exact composition of this new policy mix remains one of the most important challenges of policymaking in Greece and the euro area.
An extract from George Alogoskoufis, Greece and the Euro: A Mundellian Tragedy, paper presented in the Tufts/LSE conference on Greece and the Euro: From Crisis to Recovery, Fletcher School, Tufts University, April 12, 2019.