Greece: Taking stock - economic and financial changes since the onset of the global and euro area crises

Francisco Torres (Santander Visiting Fellow, St Antony's College, Oxford)
Jonathan Scheele (ESC Visiting Fellow, St Antony's College, Oxford)

On 17 February Eleni Dendrinou-Louri, Deputy Governor of the Bank of Greece, spoke at a SEESOX seminar organised in association with PEFM. The session was chaired by Max Watson, PEFM Director, and Francisco Torres, Santander Visiting Fellow, was discussant

On the economy and economic adjustment, she characterised the pre-crisis period from 2001 to 2008 as a low inflation and low interest rate environment, with negligible spreads vis-à-vis German government bonds but large and growing fiscal and external imbalances.

On the fiscal front, the deficit was almost continuously above 5% of GDP, worsening considerably from 2007 onwards. At the same time, those fiscal imbalances were structural, given the unfunded pension system, the lack of budgetary controls in healthcare, the weak tax administration and poor collection rates, the large underground economy and the clientelist political system.

On the competitiveness front the situation was no better, with Greece losing competitiveness by about 30% against its trading partners between 2001 and 2009. The current account deficit widened significantly between 2001 and 2008 and the relative price of non-tradables increased substantially. Greece ranked worst in the euro area as regards its twin deficits – budget and current account. Thus ‘the debt crisis was an accident waiting to happen’. Spreads sky rocketed and gave rise to self-fulfilling debt dynamics, resulting in a debt-GDP ratio of 176.2% in 2013.

Whatever happened with Transition in Central and Eastern Europe?

Jonathan Scheele (ESC Fellow, St Antony's College, Oxford)

Alina Mungiu-Pippidi is a regular visitor to SEESOX and, as always, gave us a thought-provoking evening and material for much further work. Last year she spoke about corruption in the new EU Member States, but this time she developed some of her earlier work on transition, in particular her 2009 paper “The Other Transition”[1]. There, she had argued that the history of the post-communist transition could be rewritten as a renegotiation of a social contract between state and society after Communism.

Now, 25 years after the fall of the Berlin Wall, Alina felt it was time to re-examine the whole issue of transition. Among a list of questions to be answered was whether “transition” still deserved a word for itself. Are ‘transition’ and modernisation synonyms? How does transition relate to development and is it a necessary stage? When can we consider transition as accomplished? And once it is accomplished, is it sufficient for development? Are some transition policies more successful than others? And what is the share of policies and institutions in shaping transitions?

The Eurozone crisis: An insider’s view from Cyprus

Androulla Kaminara (Academic Visitor, St Antony's College, Oxford)

On the 27th of January Dr Michael Sarris[1] gave a very lucid account into the functioning of the Eurogroup, as was experienced by the Cypriot delegation during the two meetings of March 2013. The first meeting resulted in a decision for a bail-in of Cypriot banks by all depositors and the second decision of bail-in from depositors with deposits of over 100,000 euro.

He highlighted that the current narrative is based on looking only at some of the symptoms of what is wrong with the European construction and not at the underlying problems. He believes that many Member States took seriously the benefits of the Eurozone and less seriously the obligations emanating from being a member.  However the Eurozone architectural construction had shortcomings that were not addressed, as for example, the lack of a mechanism to control imbalances, in both surplus and deficit countries. “When we realised that they were a lot of fires burning – we concentrated on rules to avoid new fires from developing, rather than to put out existing fires.”  Crisis mismanagement and a faulty decision making process are at the heart of the Eurozone’s continuing troubles.