Thomakos et al (eds ) a financial crisis manual; reflections and the road ahead (2015)

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A Financial Crisis Manual
Reflections and the Road Ahead
Edited by

Dimitrios D. Thomakos
Professor of Applied Econometrics, University of Peloponnese, Greece

Platon Monokroussos
Group Chief Economist and Deputy General Manager of
Eurobank Ergasias S.A., Greece

and

Konstantinos I. Nikolopoulos
Professor of Decision Sciences, Bangor Business School, UK

Selection and editorial matter © Dimitrios D. Thomakos, Platon Monokroussos
and Konstantinos I. Nikolopoulos 2015
Individual chapters © Contributors 2015
Softcover reprint of the hardcover 1st edition 2015 978-1-137-44829-3
All rights reserved. No reproduction, copy or transmission of this
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First published 2015 by
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Library of Congress Cataloging-in-Publication Data
A financial crisis manual : reflections and the road ahead / edited by Dimitrios D.
Thomakos, Professor of Applied Econometrics, University of Peloponnese, Greece,
Platon Monokroussos, Group Chief Economist and Deputy General Manager of
Eurobank Ergasias S.A., Greece, Konstantinos I. Nikolopoulos, Professor of Decision
Sciences, Bangor Business School, UK.
pages cm. — (Palgrave Macmillan studies in banking and financial
institutions)
1. Finance, Public – European Union countries. 2. Monetary policy –
European Union countries. 3. Debts, Public – Law and legislation – European
Union countries. I. Thomakos, Dimitrios D., editor. II. Monokroussos, Platon,
1965– editor. III. Nikolopoulos, Konstantinos I., 1974– editor.
HJ1000.5.F563 2015
336.94—dc23
2015026343


To my family, Anthi, Olympia and George, for their ever-present love but
also for their patience of endlessly listening about the crisis and always
responding, “cheer up, it’s the economists’ limelight!”.
Dimitris

To my lovely parents and sister, my nieces Lydia and Kyveli and to Lilian for
all the love and encouragement they have given me in editing this volume.
Platon

To Nina, Ilias, Polyanna and Spyros for all the time I’ve stolen from them;
and for all the love and inspiration they have given me.
Kostas


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Contents

List of Figures

ix

List of Tables

xii

Acknowledgments

xiv

Disclaimer

xv

Notes on Contributors

xvi

Introduction
Dimitrios D. Thomakos, Platon Monokroussos and
Konstantinos I. Nikolopoulos

1

Part I The Industry Perspective
1

A Retrospective on the Great Recession: Causes,
Effects and Prospects
Inachos Lazos

11

2

European Public Finances through the Crisis
Fabrice Montagné

24

3

ECB Monetary Policy and the Euro during the Crisis
Athanasios Vamvakidis

39

4

The Repression of Financial Markets
Ralph Sueppel

58

5

Chasing the Tail of Financial Stability? Solutions to the
Last Crisis Are the Seeds for the Next One
Marcel Kasumovich

Part II
6

81

The Case of Greece

An Empirical Study on Greece’s Current Account
Determinants Before and After the Outbreak of the Global
Financial Crisis
Platon Monokroussos and Dimitrios D. Thomakos

vii

105


viii

Contents

7 Greek Fiscal Multipliers Revisited: Government
Spending Cuts vs. Tax Hikes and the Role of Public
Investment Expenditure
Platon Monokroussos and Dimitrios D. Thomakos
8 The Challenge of Restoring Debt Sustainability in a Deep
Economic Recession: The Case of Greece
Platon Monokroussos
9 The Case for a New Reprofiling of Greek Public Debt and
Why a Relaxation of the Bailout Program’s Future Fiscal
Targets May Prove to Be a Self-Financing Policy Shift
Fokion Karavias and Platon Monokroussos

130

170

189

10 External Debt Evolution When Global Financial
Markets Are Incomplete
Alexis Anagnostopoulos and Gregorios D. Siourounis

201

11 Foreign Direct Investment, Innovation and Brain Drain in
Greece: Turning a Problem into an Opportunity
Constantina Kottaridi

225

Part III

Crisis Economics and the Road Ahead

12 Globalized Finance in Disarray
Shanti P. Chakravarty

257

13 The Elephant in the Euro Room
Alex Patelis

281

14 From the Euro-Crisis to a New European Economic
Architecture
Michael G. Arghyrou

308

Afterword: The road Ahead
Dimitrios D. Thomakos, Platon Monokroussos and
Konstantinos I. Nikolopoulos

329

Index

331


List of Figures
2.1

Levels and changes in spending composition
across countries (% of GDP)
2.2 (a) Public sector investment (% of GDP) and
(b) private sector investment (% of GDP)
3.1 Eurozone monetary policy stance
(policy rate – Taylor rule)
3.2 Monetary policy stance: spread from a Taylor rule
(policy rate – Taylor rule)
3.3 Monetary policy stance (policy rate – Taylor rule)
3.4 Performance since the global crisis and inflation in
G10 economies
3.5 Eurozone 5y5y inflation swap rate
3.6 Unemployment and the euro
3.7 Core inflation and the euro
3.8 FED vs. ECB balance sheet and EUR/USD
3.9 ECB vs. Fed monetary policy stance and EUR/USD
3.10 Eurozone current account balance (€bn)
3.11 Eurozone trade of goods and services with the rest
of the world (€bn)
3.12 Eurozone current account balance (four-quarter
moving sum, €bn)
3.13 Eurozone balance of payments (6M moving sum, €bn)
3.14 Share of EUR reserves and EUR/USD

3.15 Bank sector claims (BIS data, % of EZ GDP)
3.16 EZ equity flows from non-EZ (four-week average,
% of AUM)
5.1 US financial integration much deeper than trade
5.2 Bank deleveraging substantial and ongoing
5.3 China-led EM V-shaped recovery
5.4 Rapid capital inflows into emerging markets ($bn)
5.5 US Treasury buying dominated by central banks
5.6 US corporate financing needs low, debt issuance surges
5.7 Fixed income demand much stronger in this cycle
5.8 EM bond funds have a steep discount to asset value
6.1 Greece’s current account (CA) deficit (ppts of GDP)

ix

31
33
42
43
44
45
45
49
49
50
50
51
52
53
53

54
55
56
84
86
89
90
92
93
94
96
115


x

List of Figures

6.2
7.1

7.2

7.3

7.4
7.5

7.6

7.7

7.8
8.1

8.2

8.3
10.1

Greece’s CA as a savings-investment imbalance
(ppts of GDP)
(a) (Gt, Tt, Yt) – negative Gt shock (−1.5% YoY) in
regime 1 (lower) and regime 2 (upper); (b) (Gt, Tt, Yt) –
positive Gt shock (+1.5% YoY) in regime 1 (lower)
and regime 2 (upper)
(Gt, Tt, Yt) – negative Gt shock (−3 YoY) in regime 1
(lower) and regime 2 (upper); (b) (Gt, Tt, Yt) – positive
Gt shock (+3 YoY) in regime 1 (lower) and
regime 2 (upper)
(Gt, Tt, Yt) – negative Gt shock (−5 YoY) in regime 1
(lower) and regime 2 (upper); (b) (Gt, Tt, Yt) – positive
Gt shock (+5 YoY) in regime 1 (lower) and
regime 2 (upper)
Critical threshold for TVAR model specification
yt = (Gt, Tt, Yt)
(a) (Gt, Tt, Yt) – negative Tt shock (−1.5% YoY) in regime 1
(lower) and regime 2 (upper); (b) (Gt, Tt, Yt) – positive
Tt shock (+1.5% YoY) in regime 1 (lower) and
regime 2 (upper)

(a) (Gt, Tt, Yt) – negative Tt shock (−3% YoY) in regime 1
(lower) and regime 2 (upper); (b) (Gt, Tt, Yt) – positive
Tt shock (+3% YoY) in regime 1 (lower) and
regime 2 (upper)
(a) (Gt, Tt, Yt) – negative Tt shock (−5% YoY) in regime 1
(lower) and regime 2 (upper); (b) (Gt, Tt, Yt) – positive
Tt shock (+5% YoY) in regime 1 (lower) and
regime 2 (upper)
Critical threshold for TVAR model specification
yt = (Gt, Tt, Yt)
Debt-to-GDP ratio evolution, under different fiscal
adjustment scenarios using potential GDP growth
as the baseline
Debt-to-GDP ratio evolution, under different fiscal
adjustment scenarios using the GDP growth of the
revised Greek adjustment program as baseline
Response of GDP to one-off cyclical adjustment
Calibrated Impulse Response Functions to a one period
one standard deviation positive productivity shock in an
economy with external debt option

116

160

161

162
163

163

164

165
166

178

181
186

216


List of Figures

11.1
11.2
11.3

13.1
13.2
13.3
13.4
13.5
13.6
13.7
13.8
13.9

13.10
13.11
13.12
13.13
13.14
13.15
13.16
13.17
13.18
13.19
13.20
13.21

Crisis and recovery paths of the US and Greece
(years since start of contraction)
Future plans of respondent, migration survey
The interrelationships among innovation, human
capital, FDI and growth and the effect of brain drain on
economic growth via its leakages from key growthenhancing factors and growth itself
Current account balance
Current account balance – 2
Unemployment rate
Germany
Unit labor costs
Unit labor costs – 2
HICP
Germany house prices
MFI loans to households
MFI loans to nonfinancial corporates
Trade balance, 12m total

2014 current account balance
Germany’s international investment position
Germany’s exports
German trade balance, changes since March 2008
Germany’s trade balance
Germany’s gross external assets, by type of holder
Germany’s gross external assets, change 2009–2013
Germany’s gross external assets, by type of asset
Germany’s net investment abroad, 2009–2013
Germany’s banks: foreign claims, end 2013

xi

227
238

243
282
283
285
286
287
288
289
289
290
291
292
297
298

299
300
301
301
302
302
303
305


List of Tables
2.1
2.2
6.1
6.2
6.3
6.4
6.5
6.6
7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8
8.1
9.1
9.2

9.3

Impact of lower interest rates on debt servicing costs
Fiscal multipliers vary across spending and revenues
Current account determinants and sign of theoretical
relationship
Determinants of Greece’s current account balance:
alternative VECM specification
Data and notation
Unit root test results for current account-to-GDP,
ca (in levels)
Unit root test results for the first differenced series
of ca variable
Cointegration tests
Greece: general government revenues and expenditures
compared to EU average
Package of new austerity measures 2013–2016/1
Raw data and definition of variables
Output response to government current expenditure
shocks
Output response to government net revenue shocks
Output response to government current expenditure
shocks – 2
Output response to government net revenue
shocks – 2
Output response to public investment expenditure
shocks
Evolution of gross public debt ratio and underlying
assumptions

Impact of EU bailout loan restructuring on Greece’s
general government debt ratio
Cumulative impact of EU bailout loan restructuring
on Greece’s general government net borrowing
requirement in billion euros (negative sign indicates
cash-flow relief)
Impact of EU bailout loan restructuring and relaxation
of the primary surplus target on the debt ratio

xii

26
35
113
120
126
127
127
127
144
146
148
152
153
155
156
157
185
193

193
195


List of Tables

10.1
10.2
10.3
10.4
11.1
11.2
11.3
13.1
13.2

Summary statistics
The MADF test
The Levin–Lin–Chu test
The Im–Pesaran–Shin test
FDI inflows in the euro area member states during
the crisis and post-crisis periods ($bn)
Innovation performance
Motives to work abroad in order of significance
(1 = not important, 3 = highly important)
Inflation of countries with large c/a surpluses and
fixed exchange rates (% YoY 2008–2012)
Germany’s portfolio investment assets – top five
partners (€bn)

xiii

209
211
212
214
229
231
232
295
304


Acknowledgments
First and foremost we thank all our contributors (all named in the next
section where detailed bios are provided), without which this edited
book would have not been possible.
A very special thanks must go to our editorial assistance team, Thomas
Alexopoulos and Andreas Tsalas, both PhD candidates in the Department
of Economics, University of the Peloponnese in Greece, for their invaluable help and support in preparing this volume.
Special thanks to the team from Palgrave Macmillan publishing
house – initially Aimee Dibbens and in the latest and most crucial stages
Grace Jackson as well as the production team. Also our gratitude to
Professor Phil Molyneux (Dean – Bangor University College of Business,
Law, Education and Social Sciences), Editor-in-Chief for the Palgrave
Macmillan Studies in Banking and Financial Institution Series for his
decision to approve our proposal, and his comments and suggestions at
all stages of the project.
Also many thanks to our colleagues at the University of the
Peloponnese, the Rimini Centre of Economic Analysis, Eurobank S.A.

and Prifysgol Bangor University (as well as in many other fora) for their
ideas shared with us whenever the topic of the book was coming to
the discussion; a final thanks to all our students that have been “freshening” up our take, view, ideas and thinking on the topic throughout
the years.

xiv


Disclaimer
The Editorial team emphasizes that the contributors’ views expressed in
their respective chapters are their personal views and do not express the
views of any of their previous or current employers.

xv


Notes on Contributors

Editors
Platon Monokroussos is Deputy General Manager and Group Chief
Economist at Eurobank Ergasias S.A. He is the Chairman of the Scientific
Council of the Hellenic Bank Association and its representative at the
Chief Economist Group of the European Banking Federation. He is also
a member of Board of Directors of Eurobank Properties REIC, a public
company which manages one of the most important commercial property portfolios in Greece and Eastern Europe. He holds a Professional
Qualification Certificate for the provision of investment services (type D)
issued by the Bank of Greece. Before joining Eurobank, he held high-level
positions in leading financial institutions, including ABN AMRO and
Bank of America. Monokroussos holds a Bachelor’s degree in theoretical
Mathematics (University of Crete, Greece), Masters Degrees in Economics

(Clark University, Worcester, MA, USA) and Business Administration
(Boston College, Wallace E. Carroll School of Management Boston, MA,
USA) as well as a Diploma in Business and Corporate Leadership from
Harvard Business Publishing. He holds a PhD from the National and
Kapodistrian University of Athens (doctorate thesis on foreign exchange
microstructure).
Kostas I. Nikolopoulos is the Director of forLAB, the forecasting
laboratory (www.forLAB.eu) in Bangor Business School and the think
tank www.forTANK.com. He specializes in time series analysis and
forecasting, decision support systems and forecasting the impact of
special events. He holds a PhD in Engineering from National Technical
University of Athens (ΕΜ∏). He holds the Chair in Decision Sciences
at Bangor Business School and is the College Director of Research
(Assistant Dean/Research) for the College of Business, Law, Education
and Social Sciences in Prifysgol Bangor University. His work has
appeared in numerous journals, and he is Associate Editor of Oxford
IMA Journal of Management Mathematics and Supply Chain Forum:
An International Journal. He is co-originator of the Theta forecasting
method and the ADIDA temporal aggregation method-improving
framework.
xvi


Notes on Contributors

xvii

Dimitrios D. Thomakos is Professor of Applied Econometrics and Head
of the Department of Economics at the University of Peloponnese,
Greece, and senior fellow and member of the Scientific Committee at

the Rimini Center for Economic Analysis in Italy. He holds an MA, MPhil
and PhD from the Department of Economics of Columbia University.
His research work has appeared in several prestigious international
journals in economics and finance such as the Review of Economics and
Statistics, Canadian Journal of Economics, Review of International Economics,
Journal of Empirical Finance, International Review of Financial Analysis,
International Journal of Forecasting and others. He has been a guest co-editor for Mathematical & Computer Modelling, an editorial board member
of the Journal of Modern Applied Statistical Methods and now serves on the
editorial board of the International Journal of Energy and Statistics. He is
also the co-founder of QuantF.com.

Contributors
Alexis Anagnostopoulos holds a BSc in Business Mathematics and
Statistics and an MSc in Econometrics and Mathematical Economics
from the London School of Economics. He went on to complete his
PhD thesis at the London Business School in 2006 under the supervision of Prof. Morten Ravn. Since graduating, he has been working as an
assistant professor in The economics Department of the State University
of New York at Stony Brook. He has spent time as a visiting scholar at
the University of Cambridge, at the University of Southern California
Marshall Business School and at UCLA. His research interests lie in
the area of the macroeconomic effects of financial market incompleteness. His recent work has looked into the effects of incomplete markets
on optimal tax policy as well as on households’ home-ownership
decisions.
Michael G. Arghyrou is Reader in Economics and Director of the M.Sc.
in International Economics, Banking and Finance at Cardiff Business
School. His research interests are international macroeconomics/
finance. His articles have appeared in the Canadian Journal of Economics,
Oxford Economic Papers, Review of International Economics, Economics
Letters, Journal of Macroeconomics, Journal of International Financial
Markets and Institutions & Money. He provides regular commentary

to major international media including the BBC, CNN, Sky News,
Voice of America, Bloomberg Radio, Washington Post, Reuters, ABC
News and Russia Today. He also provides regular commentary and


xviii

Notes on Contributors

opinion articles to Greek media including SKAI TV, Kathimerini and
others. He is a member of the Research Fellows Network of the CESifo
Group Munich ( He is
also a member of the Scientific Board of the Institute of Democracy
Konstantinos Karamanlis, Athens ( and a member of the Julian Hodge Institute of Applied
Macroeconomics; />Shanti P. Chakravarty is Professor Emeritus of Economics at Prifysgol
Bangor University in Wales and specializes in development, welfare
economics and political economy. He is also interested in macroeconomic forecasting and is a strategic advisor for forLAB, the forecasting
laboratory in Bangor Business School. He is a former “Centre for Systems
Science” fellow at the University of Rochester and research fellow on the
Southampton Econometric Model Building Unit. More recently he was
Chair in Economics at Bangor Business School. He subsequently worked
on the construction of an econometric model for Wales. Recently, he was
a visiting professor at the University of Frankfurt and the guest lecturer
at Central Institute of Finance, Beijing.
Fokion Karavias is a chief executive officer at Eurobank Ergasias S.A.
and a member of the Board of Directors. He was Senior General Manager,
Head of Group Corporate and Investment Banking, Capital Markets
and Wealth Management from July 2014 to January 2015. He has
held professional positions at JP Morgan, Citibank and Eurobank, and
became Treasurer at Telesis Investment Bank in 2000. Ηe is a member

of the Board of Directors of Eurobank Private Bank Luxembourg S.A. He
holds a Diploma in Chemical Engineering from the National Technical
University of Athens, a Master’s and PhD in Chemical Engineering from
the University of Pennsylvania, Philadelphia. He has published several
papers on topics concerning his academic research. Most recently, he
has written a number of articles about the Eurozone and Greek sovereign crisis, published in the Greek press.
Marcel Kasumovich has a background in the intersection of global
macro, policy and financial markets. His experience ranges from
academic policy research at the Bank of Canada, technical advisor to the
International Monetary Fund, international bond and currency strategies at Goldman Sachs and Merrill Lynch, and asset management at Soros
Fund Management, as well as start-up funds. As regulatory and technological changes alter the investment landscape, Marcel is increasingly


Notes on Contributors

xix

focused on new innovations to identify and deliver medium-term macro
investment exposures to global investors. Marcel holds a Master’s in
Economics from the University of Toronto.
Constantina Kottaridi is an assistant professor in the Department
of Economics at the University of Piraeus. She holds a Master’s in
Economics with a Bachelor’s in Statistics from Iowa State University. She
joined the doctoral program of the Department of International and
European Economic Studies at Athens University of Economics and
Business where she was granted her PhD in 2004. In September 2004
she was employed at the University of Peloponnese, Department of
Economics as a visiting lecturer. Her area of specialization is in foreign
direct investment and multinational corporations, economic development and growth, small- and medium-sized enterprises. Her articles have
appeared in Journal of Macroeconomics, Empirical Economics and Review of

International Economics. She is a special advisor to the Observatory Plus,
Crisis Observatory, ELIAMEP (Hellenic Foundation for European and
Foreign Policy), a board member of the Hellenic Open University and
Centre for the Greek Language.
Inachos Lazos began his career in finance at the London office of
Salomon Brothers in 1999 as an investment-banking analyst. Following
the firm’s absorption by Citigroup, he spent six years advising European
financial institutions in mergers and acquisitions and debt capital market
transactions. Since 2006 he has worked as a portfolio strategist, holding
positions at some of the world’s largest and most reputable global macro
hedge funds in New York, London, Geneva and Singapore. In these roles
he has navigated the gyrations of the global economy and their investment implications during the past decade. He holds a BA in European
Studies from Essex University, UK as well as an MBA from the Sloan
School of Management in Boston.
Fabrice Montagné is Chief UK Economist at Barclays. Previously, he
was a senior European economist responsible for French, Greek and
euro area macroeconomics. He joined Barclays in January 2012 from
the Dutch Central Bank where he was responsible for balance sheet,
asset/liability management and strategic asset allocation decisions in
the Financial Market division. Prior to that, he worked at the French
Treasury and Fonds de Reserves pour les Retraites. He graduated from
Ecole Polytechnique and holds an MSc in Economics and Statistics
from ENSAE and an MSc in Economic Analysis and Policy from the Paris
School of Economics.


xx

Notes on Contributors

Alex Patelis is the founder of Patelis Macro, a macroeconomic research
firm he launched in 2010. He has over 18 years of experience with global
client franchises. Patelis Macro (www.patelismacro.com) is an independent, unbiased, boutique firm offering macroeconomic research to
select clients around the world. Previously, Alex was Managing Director
of Global Research, Head of International Economics with Merrill Lynch.
Based in London, he joined Merrill Lynch in 2002, was promoted to
Head of Global FX & Debt Strategy in 2006 and to his latest position in
2007. Prior to that, Alex was a quantitative economist with Citigroup
Asset Management based in London, an associate with Goldman, Sachs
& Co. in New York working for Bill Dudley, Chief US Economist as well
as a proprietary FICC trader. He holds an MA and PhD in Economics.
Gregorios D. Siourounis is Assistant Professor of Economic Theory and
Policy in the Department of Regional and Economic Studies, Panteion
University, Athens, Greece. He holds a PhD from the London Business
School. He received the 2005 Young Economist Award from the European
Economic Association and the 2008 Austin Robinson Prize from the
Royal Economic Society for his work on “Democratization and Growth”
(jointly with Elias Papaioannou). After his PhD, Gregorios spent almost
two years in the Global FX Strategy team at Barclays Capital as global
head of quantitative research. He has published papers in democratization, reserve allocation, capital markets and capital flows, and he
is currently working on political institutions and foreign aid, human
capital quality accumulation for long-term growth and capital flows and
asset prices. He advises numerous private equity funds on asset allocation and is certified from the British FSA on consulting and trading financial instruments. He is a member of the American Economic Association
and the Royal Economic Society and a referee for Econometrica, American
Economic Review, Quarterly Journal of Economics, Economic Journal and the
Review of Economics and Statistics.
Ralph Sueppel is an executive member of Graham Capital LLP. He
manages relative-value investments based on macroeconomic trends
across asset classes and markets. Prior to joining Graham, he worked
at UBS Investment Bank as Head of Quant Macro Algorithmic Trading

Strategies (2010–2011). From 2005 to 2009, he was a partner at BlueCrest
Capital Management, serving as Chief Economist and Portfolio Manager.
Prior to this assignment, he held positions in research and strategy at
J.P. Morgan (1993–2002), the European Central Bank (2002–2003) and
Merrill Lynch (2003–2005). He holds a PhD in Monetary Policy and
Financial Markets from the University of Bonn.


Notes on Contributors

xxi

Athanasios Vamvakidis has been Managing Director and Head of
European G10 Foreign Exchange Strategy for Bank of America Merrill
Lynch in Europe since 2010. During 1997–2010, he worked at the
International Monetary Fund, where he held a number of senior positions, including Deputy Division Chief in the Strategy, Policy and Review
Department and Resident Representative in Croatia. He was one of the
architects of the IMF-FSB Early Warning Exercise. He holds a Master’s
and PhD in Economics from Harvard University. His research interests
include a broad range of topics in international economics and macroeconomics and he has published extensively.


Introduction
Dimitrios D. Thomakos, Platon Monokroussos and
Konstantinos I. Nikolopoulos

Responding to the Queen’s criticism for the failure to anticipate
the credit crunch, a group of influential economists apologised:
“ ... most were convinced that banks knew what they were doing.
They believed that the financial wizards had found new and clever

ways of managing risks”.
(Beesly et al., 2009: 2)
“Seriously? Not another book about the crisis? And, unfortunately too,
it’s probably written by academics; you know these wise guys that never
set foot in the real world”. This may well have been your reaction on
seeing the title of this book. We understand – the financial crisis of 2008
has generated such an enormous amount of discussion, in all aspects of
economic and social life, that some might find it tiresome to continue to
ponder about what happened and how things can improve.
But if you think a bit more about it, for some the crisis is not really
over and the problems it created have not gone away. Not only that, the
crisis has generated a lot of structural changes in how we see the workings of the economy, how we handle issues of international finances,
how people’s incentives change, how the flow of labor mobility has
changed accordingly ... and many, many other issues. The question “Can
it happen again (soon)?” is continually being asked, from various players
around the world and with various underlying reasons.
In this book we present a different view of things. The world economy
is a complex structure and, like all complex structures, it requires many
different skills and abilities from different people to function properly.
Some problems recur but others are new and need to be handled “on
the fly”. It would be nice if there were “instructions”, a “manual” of

1


2

Thomakos, Monokroussos and Nikolopoulos

operation to refer to, right? However, in order to produce instructions

that work in a systematic fashion you need to bring in contributors who
work on different stages of its operation.
In the real world, academics are often listened to but their opinions
are infrequently put into action; practitioners rarely collaborate with
them, their actions mostly dictated by client needs and the constraints
of economic and financial regulation – the latter being put into place by
politicians (not necessarily economists!). In the end we risk each group
of actors doing their work in isolation, both physical and mental. This
can be neither productive nor complete.
We have tried to bridge the gap between practitioners and academics,
to put forward the perspective of those who have spent a significant
amount of their lives being educated by the “best” the university system
has to offer and take academically informed decisions in their everyday
business life – and by doing so affecting the way the real world works.
We want them to share their perspective with academics so that we can
attempt to understand what went wrong with “theory” before the crisis
and how it can be mended, so that it will not happen again (well, not
soon at least).
It is one thing to talk about fiscal imbalances in the classroom, or in
a seminar; quite another to discuss them in a meeting where decisions
affecting the global flow of funds are being taken. The impact of the
crisis on views about financial regulation has been completely different
for those who implement financial transactions every day than for those
who frame policy in Brussels or Frankfurt. The solutions to problems of
growth and unemployment and the implications of monetary policy
decisions can be explored in an academic exercise, but have the potential to make firms, sectors and countries go bankrupt due to the possibility of misinterpretation.
All in all, to talk about the crisis without having a mix-and-match
of industry practitioners and academics will not provide the real-world
solutions that we need. As you read through this volume you can, we
hope, gain a more complete understanding, not only of the way the

causes of the crisis were and are understood by a variety of actors, but also
how those actors understand the potential solutions. Practitioners and
academics don’t have to agree (either on the causes or the solutions), but
they do have to be aware of each other’s views so that “accidents” don’t
happen and mutually beneficial solutions to current economic problems can be suggested to policy-makers. In fact, we see our merging of
opinions of industry and academia as a very important issue for policymaking: a concentrated thrust from both groups to policy-makers can


Introduction

3

possibly lead to solving (or in the end just cutting through) the Gordian
knot of economic recovery and growth for the years ahead.
Our attempt to reach the aforementioned mix of contributions took
us the best part of two years, a period full of uncertainty and spasmodic
actions in the markets and the global economy, a period that left even
our contributors wondering whether their chapters would still be relevant once you read these lines. We believe emphatically that they are
relevant and will remain so for quite some time, as originally hoped.
This is a (crisis) manual for future reference.
The book is divided into three main parts: Part I presents “The Industry
Perspective”, with well-informed practitioners providing insightful and
insider accounts of what really happened in the last (and lost?) decade
and the factors involved. Most importantly they attempt to show how
we can move forward. These are not the views of people who have long
retired, sitting on their accumulated bonuses. These are people who
day-in and day-out are taking decisions at the forefront of the financial
and banking sector.
Part II focuses on Greece, for a number of reasons. It’s the country
most affected by the crisis and still at the very core of the turmoil, with

the terms “default”, “Grexit” and “Greccident” reappearing every other
week in official (EU) governmental and Commission documents. It is a
live “laboratory”, where all kind of orthodox (and unorthodox) policies,
experiments and “recipes” have been applied by local government(s)
and, most importantly, imposed on it by the IMF, the ECB and the –
still – not so federal EU.
Part III explores the views of economists: hence the title “Crisis
Economics and the Road Ahead”. It was absolutely critical for this book
that we attempt to include a section like this. We cannot overlook all the
alternatives economic theory has to offer, wherever they might come
from. If implemented pragmatically in a 21st-century environment they
may well prove to be the fresh ideas and solutions we were looking for
in the first place (even if they turn out to be 200 or 2,000 years old!).
This section includes both economists working in universities as well as
those practising 24/7 in the forefront of the financial battlefield. This
last part of the book may seem to be a bit more theoretical, but it is
100% relevant to the context that we have been experiencing in the last
few years of turmoil. Most importantly it explains, to a certain extent,
the past and helps prepare us for the future!
In Chapter 1, titled “A Retrospective on the Great Recession: Causes,
Effects and Prospects”, Inachos Lazos claims that macroeconomic asymmetries had been in the making in the euro area ever since its inception,