Bournakis et al (eds ) political economy perspectives on the greek crisis; debt, austerity and unemployment (2017)

Debt, Austerity and Unemployment
Edited by
Ioannis Bournakis
Christopher Tsoukis
Dimitris K. Christopoulos
Theodore Palivos


Political Economy Perspectives
on the Greek Crisis


Ioannis Bournakis · Christopher Tsoukis
Dimitris K. Christopoulos
Theodore Palivos
Editors

Political Economy
Perspectives on the
Greek Crisis
Debt, Austerity and Unemployment


Editors
Ioannis Bournakis
Department of Economics
Middlesex University
London, UK
Christopher Tsoukis
Economics and Finance, Keele Management
School

Keele University
Keele, UK

Dimitris K. Christopoulos
Department of Economic and Regional
Development
Panteion University
Athens, Greece
Theodore Palivos
Athens University of Economics and
Business
Athens, Greece

ISBN 978-3-319-63705-1
ISBN 978-3-319-63706-8  (eBook)
DOI 10.1007/978-3-319-63706-8
Library of Congress Control Number: 2017948279
© The Editor(s) (if applicable) and The Author(s) 2017
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Contents

Part I  Introduction and Political Economy Approaches
1Introduction3
Christopher Tsoukis, Ioannis Bournakis,
Dimitris K. Christopoulos and Theodore Palivos
2

The Eurozone Crisis: A Near-Perfect Case
of Mismanagement41
Charles Wyplosz

3

The Elusive Promise of Structural Reform61
Dani Rodrik

4

The Responsibility of the EU71
John Grahl

5

German Macroeconomic Thought and Its Effects93
George Bratsiotis and David Cobham

v


vi    
Contents

6

Seven Years of Austerity and the Greek Dra(ch)ma:
Three Economists’ Views and a Comment117
Menelaos G. Karanasos, Panagiotis D. Koutroumpis,
John Hatgioannides, Marika Karanassou and Hector Sala

Part II  Debt, Austerity and Credit Ratings
7

A Macroeconomic Perspective on the Greek Debt Crisis157
Michael Wickens

8

On the Role of the Credit Rating Agencies
in the Euro Zone Crisis177
Periklis Boumparis, Costas Milas
and Theodore Panagiotidis

9

The Greek Great Depression: A General Equilibrium
Study of its Drivers205
George Economides, Dimitris Papageorgiou
and Apostolis Philippopoulos

10 The Limits of Austerity: The Fiscal Multiplier
and the ‘Debt Laffer Curve’223
Christopher Tsoukis
11 Fiscal Consolidation Policies and the Underground
Economy: The Case of Greece249
Evi Pappa, Rana Sajedi and Eugenia Vella
Part III  Sectoral Views
12 Output and Unemployment: Estimating Okun’s
Law for Greece273
Ioannis Bournakis and Dimitris K. Christopoulos


Contents    
vii

13 On the Determinants of NPLs: Lessons from Greece289
Evangelos Charalambakis, Yiannis Dendramis
and Elias Tzavalis
14 Who Exports High-Quality Manufacturing
Products? Some Empirical Regularities
From Greek Exporting Firms311
Sarantis Kalyvitis

15 Spatial Structure and Spatial Dynamics of Regional
Incomes in Greece335
Burhan Can Karahasan and Vassilis Monastiriotis
16  Greece’s Competitiveness: A Survey and Concluding
Remarks359
Ioannis Bournakis and Christopher Tsoukis
Index383


Editors and Contributors

About the Editors
Ioannis Bournakis  is a Senior Lecturer in Economics in Middlesex University
Business School, London. Ioannis has earned a Masters in Economics and
Econometrics from the University of Manchester and a Ph.D. in Economics
from the University of Kent. He is currently teaching Intermediate and
Advanced Macroeconomics while his research interests lie within International
Trade, Economic Growth and Applied Macroeconomics. He has recently published in Economic Inquiry, Review of Income and Wealth and Economic
Modelling.
Christopher Tsoukis  is a Senior Lecturer in Economics at Keele University’s
Management School, specialising in macroeconomics. With a Ph.D. in
Economics from London University (Queen Mary and Westfield College),
he has previously taught at Hull and London Metropolitan Universities, and
has been a Research Officer at the National Institute of Economic and Social
Research in London and a Senior Research Fellow at the European Institute of
the LSE. His research is in social and behavioural macroeconomics, as well as
in more traditional areas of the discipline such as business cycles, fiscal policy
and current accounts. He regularly publishes in internationally renowned scientific journals.
ix

x    
Editors and Contributors

Dimitris K. Christopoulos  is Professor of Economics in the Department of
Economic and Regional Development at Panteion University (Athens-Greece)
where he teaches Economic Growth and Microeconomic Theory (graduate course). Dimitris earned his B.A. in economics from Athens University of
Economics and Business and he holds a Ph.D. from Panteion University. His
main research interests are in the areas of economic growth, economic development, Microeconomics, and non-linear models. He has published widely,
including articles in European Economic Review, Journal of Money Credit
and Banking, Journal of Development Economics, Macroeconomic Dynamics,
Economics Letters, Journal of International Money and Finance, Public
Choice, etc.
Theodore Palivos is Professor of Economics at Athens University of
Economics and Business and Senior Fellow at the Rimini Center for Economic
Analysis. He holds a Ph.D. from Penn State University. Previously, he was on
the faculty of Louisiana State University and Tilburg University. He has also
been a Visiting Professor at the Chinese University of Hong Kong, Université
Auvergne (Clermont-Ferrand) and University of Cyprus. His current research
interests are in the areas of Labor Economics, Macroeconomics, and Public
Economics.

Contributors
Periklis Boumparis is a Ph.D. student in the Department of
Economics, Finance and Accounting, Management School, University
of Liverpool. He holds a Masters in Economics with specialization in
Applied Economics and Finance and a first degree in Economics from
the University of Macedonia.
George Bratsiotis is a Senior Lecturer at University of Manchester,
Co-director of the Centre for Growth and Business Cycle Research,

Editor of The Manchester School, (2009–date), Committee Member
of the Money, Macro and Finance Research Group, Editorial Board of
Economic and Political Studies. He has published on many research
areas and journals including Scandinavian Journal of Economics,
Journal of Economic Dynamics and Control, Journal of International
Money and Finance, Macroeconomic Dynamics, Economics Letters,


Editors and Contributors    
xi

European Journal of Political Economy, The Manchester School,
Economic Modelling, Journal of Socio-Economics, Applied Economics,
Economics Bulletin, Applied Economics Letters.
Dr. Evangelos Charalambakis  has a Ph.D. in Accounting and Finance
from Manchester Business School (2006). Currently he is an economist at the Economic Analysis and Research Department at the Bank
of Greece since 2012. Prior to joining Bank of Greece he was PostDoctoral Research Fellow at the Manchester School (2007–2010). His
research deals with capital structure, corporate financial distress prediction, banking and household finance. He holds publications in scientific academic journals such as Review of Quantitative Finance and
Accounting, Applied Financial Economics, Internal Journal of the
Economics of Business. He has presented his work at major international conferences and has acted as a referee in academic journals. He
is a visiting lecturer at the Hellenic Open University and has taught
Corporate Finance at the Department of Accounting and Finance and
at the Department of Management Science and Technology at the
Athens University of Economics and Business.
David Cobham  is professor of economics at Heriot-Watt University.
His main research area has been UK monetary policy, but he also has
substantial research interests in European monetary integration, central
bank independence and Middle Eastern economies. He has published
papers in journals including Economic Journal, Oxford Economic
Papers, Oxford Bulletin of Economics and Statistics, Manchester

School and Scottish Journal of Political Economy. He is the author of
The Making of Monetary Policy in the UK, 1975–2000 (Wiley, 2002),
and co-editor of volumes including Twenty Years of Inflation Targeting
(CUP, 2010) and The Euro and the Financial Crisis (CUP, 2011).
Dr. Yiannis Dendramis received his Ph.D. in Economics from the
Athens University of Economics and Business (2012) and he is currently lecturer at the University of Cyprus, Department of Accounting
and Finance. He works in the areas of asset pricing, capital markets,
credit risk and financial econometrics. He has published his work in
academic journals like the Journal of Economic Dynamics and Control,


xii    
Editors and Contributors

Journal of Empirical Finance, Journal of Banking Finance and Journal
of Forecasting.
George Economides  is currently an Associate Professor of Economics
at the Athens University of Economics and Business (AUEB). He
was born in 1973. He holds a B.Sc. in International and European
Economic Studies (AUEB), a M.Sc. in Economics (University of York,
UK), and a Ph.D. in Economics (AUEB). He has previously worked
as a temporary Lecturer in Economics at the University of Cyprus
(2001–2002). He is Research Fellow at CESifo, Munich. His main
research area is Macroeconomics. He has published 18 articles in international academic journals, including Review of Economic Dynamics,
Scandinavian Journal of Economics, Canadian Journal of Economics,
Public Choice, International Tax and Public Finance, Macroeconomic
Dynamics, Journal of Macroeconomics, European Journal of Political
Economy and CESifo Economic Studies.
John Grahl  is Professor Emeritus of European Integration at Middlesex
University. He has been a lecturer at Queen Mary and Westfield

College, and London Metropolitan University. He is a member of
the working group for an ‘Alternative Economic Policy in Europe,’
and author of ‘European Monetary Union: Problems of Legitimacy,
Development and Stability’ (Kogan Page, London, 2001), and After
Maastricht: a Guide to European Monetary Union (Lawrence and
Wishart, London, 1997). Aside from academic publications, he has also
published articles on economics in the left wing ‘New Left Review’ and
the French monthly ‘Le Monde Diplomatique.’
John Hatgioannides is a Professor of Mathematical Finance and
Financial Engineering and Director of M.Sc. Mathematical Trading and
Finance at City University of London. His professional expertise lies in
the valuation and risk management of derivatives, credit risk modelling and management, yield curve modelling, trading strategies, financial engineering, energy markets and the global market economy and
the Eurozone functioning. He is an active member of the International
Association of Financial Engineers (IAFE) and the Futures and Options
Association (FOA). Among others his research projects have been


Editors and Contributors    
xiii

published in the Journal of International Money and Finance, Journal of
Economic Dynamics and Control and IZA Discussion Paper.
Sarantis Kalyvitis is Professor of Macroeconomics and International
Finance at the Department of International European and Economic
Studies, Athens University of Economics and Business, and holds a Jean
Monnet Chair in European Macroeconomics. His research interests are
Macroeconomics, Economic Growth, International Finance, Applied
Econometrics. His papers have been published in a number of refereed journals, including Journal of Public Economics, Journal of Economic
Dynamics and Control, and he is the author of Structural Funds: Growth,
Employment and the Environment, Economic Growth: Theory and Policy

(in Greek), International Monetary and Open Economy Macroeconomics
(in Greek).
Dr. Karahasan is Assistant Professor of Economics at Piri Reis
University. Karahasan received his Ph.D. degree in Economics from
Marmara University. Prior to joining Piri Reis, he was a visiting scholar
at Research on South Eastern Europe at EI-LSE and Quantitative
Analysis in Regional Science Unit (AQR) of University of Barcelona.
His research mainly focuses on regional and development economics with special emphasis on inequality, human capital development
and labour market issues. He received 2010 Ph.D. award from Turkish
Economic Association and 2013 Ibn Khaldun Prize from Middle East
Economic Association.
Menelaos Karanasos  is a Professor in Financial Economics at Brunel
University London. Stock volatility and its volume, commodity prices,
finance and growth, macroeconomic uncertainty, models with timevarying coefficients, mutual funds and transmission of memory are
the main objectives of his research. Vast number of his research projects have been included in journals such as the Journal of Econometrics
Econometric Theory, Journal of Empirical Finance, Journal of International
Money and Finance, Journal of Banking and Finance, Econometrics
Journal, Journal of Time Series Analysis, Oxford Bulletin of Economics and
Statistics, Economics Letters.


xiv    
Editors and Contributors

Marika Karanassou is a Reader in Economics at Queen Mary
University of London, specialising in macroeconomic analysis. Her
research focuses on dynamic macro-labour models with spillover effects,
the evaluation of the inflation-unemployment trade off, and the identification of the factors which jointly drive these central macro variables.
Marika is a Research Fellow at IZA, Bonn, and a member of the Higher
Education Academy. Her publications have been presented in the

Review of Political Economy, Regional Studies, The Economic and Social
Review, Journal of Economic Surveys and Cambridge Journal of Economics.
Panagiotis D. Koutroumpis  is a Lecturer at Queen Mary University
of London and a Visiting Fellow at London School of Economics and
Political Science (LSE). His main research interests span across four
disciplinary areas including Development Economics, Econometrics,
Economic History and Political Economy. His current research focuses
on the impact of financial development and political instability on
growth. He conducted research on the inflation convergence in the
Economic and Monetary Union (EMU) as well as in-depth analysis of
financial (dis)integration in the euro area for the European Parliament.
His publications are presented in the Journal of Empirical Finance and
in the form of a Note to the European Parliament.
Dr. Monastiriotis is Associate Professor of Political Economy at the
European Institute, London School of Economics. He is Director
of the LSE Research Unit on Southeast Europe and holds affiliations
with LSE’s Hellenic Observatory and the Department of Geography
and Environment. His research focuses on economic policy and performance at the regional, national and supra-national levels, with emphasis
on labour markets, economic growth and the macro-economy. He has
published numerous articles in economics and regional science journals and received various distinctions including the 2008 Moss Madden
Medal in Regional Science.
Costas Milas is Professor of Finance at the Management School,
University of Liverpool. He holds an M.Sc. and a Ph.D. degree from
the University of Warwick. He pursues academic research on monetary
policy behaviour in the UK and Eurozone economies. He is a Senior


Editors and Contributors    
xv

Fellow in the Rimini Centre of Economics Analysis. He has published
more than 50 articles in refereed journals. His work is quoted by The
Financial Times, The Wall Street Journal and The Guardian and writes
opinion pieces for The Conversation and The London School of Economics
British Politics and Policy blog.
Theodore Panagiotidis is an Associate professor in the Department
of Economics, University of Macedonia. He held academic positions
in Brunel University, Loughbourgh University, University of Sheffield,
Open University and the London School of Economics. He is a Senior
Fellow in the Rimini Center of Economics Analysis. He is the coeditor of the Review of Economics Analysis and serves at the editorial boards
of Journal of Economics and Finance, Economics and Business Letters,
International Review of Financial Studies, African Review Economics and
Finance. He has published more than 50 articles in refereed journals.
Dimitris Papageorgiou  is currently a researcher at the Bank of Greece
(Economic Analysis and Research Department). He was born in 1978.
He holds a B.Sc. in Economics (Athens University of Economics
and Business-AUEB), a M.Sc. in Economics (AUEB) and a Ph.D. in
Economics (AUEB). He has previously worked as a researcher at the
Centre of Planning and Economic Research (2011–2012) and temporary Lecturer in Economics at the Athens University of Economics
and Business (2010–2011). His main research area is Macroeconomics.
His research papers have published in international academic journals,
including the Journal of Macroeconomics, Economic Modelling and
CESifo Economic Studies.
Evi Pappa joined the European University Institute as Professor in
Economics in September 2011. After graduating from UPF, she was
an assistant professor of economics at the LSE (2001–2006), Bocconi
University (2004–2005) and UAB (2005–2006). Her main research
interests are International Macroeconomics and Monetary and Fiscal
Policy. She has been a visiting researcher in many Central Banks, like
the Bank of England, the European Central Bank, the Federal Reserve

Bank of Atlanta, and the Riksbank (Sweden). She has published
in international journals such as Journal of Monetary Economics,


xvi    
Editors and Contributors

International Economic Review, Journal of Public Economics, and
Economic Policy.
Apostolis Philippopoulos is currently Professor of Economics at
the Department of Economics at the Athens University of Economics
and Business. He was born in Athens in 1955. He holds a B.Sc. in
Economics (National University of Athens), an M.Sc. in Economics
(Athens School of Economics and Business) and a Ph.D. in Economics
(Birkbeck College, University of London). He has previously taught
at the University of Essex (1989–1996). He is a Research Fellow at
CESifo, Munich. His research area is macroeconomics. He has published more than 40 articles in international academic journals including the Journal of Public Economics, Journal of Economic Dynamics
and Control, Economic Journal, European Economic Review, Journal of
International Economics, Review of Economic Dynamics, Oxford Economic
Papers, Economica, European Journal of Political Economy, Scandinavian
Journal of Economics, Journal of Macroeconomics, Public Choice, etc.
Dani Rodrik  is an economist whose research covers globalization, economic growth and development, and political economy. He is the Ford
Foundation Professor of International Political Economy at Harvard’s
John F. Kennedy School of Government. He rejoined the Kennedy
School faculty in July 2015 after 2 years at the Institute for Advanced
Study as the Albert O. Hirschman Professor in the School of Social
Science. Professor Rodrik’s most recent book is Economics Rules: The
Rights and Wrongs of the Dismal Science (Norton, 2015).
Rana Sajedi  is a Research Economist in the International Directorate
of the Bank of England. She received her Ph.D. in April 2016 from the

European University Institute in Florence, Italy. She has also visited the
International Monetary Fund, and the Hungarian Central Bank. She
also holds an M.Phil degree in Economic Research from Cambridge
University and a B.Sc. degree in Economics/Econometrics from the
University of York. Her research focuses on both empirical and theoretical aspects of macroeconomic policy. Rana has already published in the
Journal of International Economics and the IMF Economic Review.


Editors and Contributors    
xvii

Hector Sala is an Associate Professor at Universitat Autònoma de
Barcelona in Spain and Research Fellow at the IZA Institute of Labor
Economics in Germany. His research output relates to the macroeconomic modelling of the labour market, the falling labour share or
the inflation-unemployment trade-off. His work has been published
in journals such as Economic Modelling, The Economics of Transition,
Journal of Productivity Analysis, Journal of Macroeconomics, Scandinavian
Journal of Economics, The Economic Record, Journal of Policy Modeling,
Journal of Economic Surveys, or the European Journal of Political E.
Elias Tzavalis  is Professor in Economics at the Athens University of
Economics and Business. Previously, he has taught at the Queen Mary
University of London and the University of Exeter. His research interests are in the areas of Econometrics (time series and panel data), and
Empirical Finance and Macroeconomics. He is currently associate
editor of the Journal of Empirical Finance. He has published in leading journals, such as Econometrica and Journal of Econometrics. His
current interests are in areas of public debt sustainability, efficiency of
monetary policy and financial markets, political economy effects and
economic business cycles and financial and banking crises.
Eugenia Vella is Assistant Professor in Economics at the University
of Sheffield UK). Prior to this, she was a Jean Monnet postdoc fellow (2014–2015) and a Max Weber postdoc fellow (2013–2014) at
the European University Institute in Florence. She obtained her Ph.D.

from Athens University of Economics and Business in September 2013.
Her research interests are in Macroeconomics, Fiscal Policy, Labour
Markets, and Economic Growth. She has published in the Journal
of International Economics, Economic Inquiry, Macroeconomic
Dynamics, and Public Finance Review.
Michael Wickens is Professor of Economics (part-time) at the
University of York and Cardiff Business School. He is a Fellow of the
CEPR and CESifo, a former Managing Editor of The Economic
Journal, Specialist Adviser to the House of Lords Select Committee on
Economic Affairs, former Chairman of HM Treasury Academic Panel
and has consulted for the IMF, Bank of England, The UN Food and


xviii    
Editors and Contributors

Agriculture Organisation and the EC Commission. His current research
interests are in macroeconomics, finance and macroeconometrics. He
has written Macroeconomic Theory: a Dynamic General Equilibrium
Approach, Princeton University Press (2nd ed. 2012). Among his publications are articles in Econometrica, Journal of Econometrics, Journal
of Applied Econometrics, Economic Journal, Review of Economic
Studies, Review of Economics and Statistics, Journal of Money Credit
and Banking, European Economic Review, Open Economies Review,
Journal of Empirical Finance, Journal of Economic Dynamics and
Control and Economic Policy. Specialist Advisor, House of Lords
Economic Affairs Committee.
Charles Wyplosz is Professor of International Economics at the
Graduate Institute in Geneva where he is Director of the International
Centre for Money and Banking Studies. He currently serves as Policy
Director of the Center for Economic Policy Research (CEPR). His

main research areas include financial crises, European monetary integration, fiscal policy, and regional monetary integration. He is the coauthor of two leading textbooks and has published several books and
many professional articles. He has served as consultant to many international organizations and governments and is a frequent contributor to
public media.


List of Figures

Fig. 1.1
Fig. 1.2
Fig. 2.1
Fig. 2.2
Fig. 2.3
Fig. 2.4
Fig. 2.5
Fig. 5.1
Fig. 5.2
Fig. 6.1
Fig. 6.2
Fig. 6.3
Fig. 6.4

Greek Debt Maturity Profile 20
Greek public debt: Cost of annual funding
and average maturity 21
General government public debts (% of GDP) 43
Debt ratios in 1970, 2007, and 2013 45
Greece in the crisis years 47
Interest rate spreads on 10-year government bonds 50
The ECB, the fed and the Bank of England 54
Current account balances % of GDP 102

Recession and recovery: US, UK and Euro-area 104
Government deficit as a share of gdp for Eurozone
countries and Euro-average.
1998–2015 (yearly rate of change)139
Government debt as a share of gdp for Eurozone
countries and Euro-average.
1998–2015 (yearly rate of change)140
GDP per capita growth (% change) for Greece, annual
data 1998–2015 143
Gross general government debt (% of GDP), annual
data 1979–2012 143
xix


xx    
List of Figures

Fig. 6.5
Fig. 6.6
Fig. 6.7
Fig. 6.8
Fig. 6.9
Fig. 6.10
Fig. 6.11
Fig. 6.12
Fig. 6.13
Fig. 6.14
Fig. 6.15
Fig. 6.16
Fig. 6.17

Fig. 6.18
Fig. 6.19

Fig. 6.20
Fig. 6.21
Fig. 6.22
Fig. 6.23

General government deficit (% of GDP), annual
data 2011–2013
Long-term government bond yields: 10-year for Greece,
monthly data 1997:06–2015:02
Monetary aggregates (M1, M2 and M3), monthly
data 2001–2015
Inflation rates for Greece, annual data 1996–2015
Credit to domestic public and private sectors
by domestic Monetary Financial Institutions
(million euros), monthly data 2002–2015
Private final consumption expenditure in Greece
(billion euros), annual data 1995–2014
Consumer confidence index for Greece, annual
data 2006–2015
Harmonised unemployment rate for Greece
(as a percentage of the civilian labour force),
monthly data 1998–2015
Youth unemployment rate for Greece (15–24 years old),
annual data 2003–2014
Youth unemployment ratio for Greece (25–29 years old),
annual data 2006–2014
Maastricht criterion bond yields for Greece, annual

data 2005–2014
Greek stock market (ASE), daily data 2005–2015
Private sector credit flow, consolidated—% GDP
for Greece, annual data 1995–2014
Foreign direct investment in Greece (volume) million
euros, annual data 2001–2014
Self-reported unmet needs for medical examination
by sex, age, detailed reason and income quintile
for Greece—% of visits, annual data 2002–2014
Main reason: Too expensive
People at risk of poverty or social exclusion—%
of total population, annual data 2004–2014
Global competitiveness index for Greece, annual
data 2006–2014
Credit default swap spread, basis points for Greece
Evolution of credit rating of Greece

144
144
145
145
146
146
147
147
147
148
148
149
149

149

150
150
151
151
152


List of Figures    
xxi

Fig. 7.1
Fig. 7.2
Fig. 8.1
Fig. 8.2
Fig. 8.3
Fig. 8.4
Fig. 8.5
Fig. 8.6
Fig. 9.1
Fig. 9.2
Fig. 9.3
Fig. 9.4
Fig. 9.5
Fig. 11.1
Fig. 11.2
Fig. 11.3
Fig. 12.1
Fig. 12.2

Fig. 13.1
Fig. 13.2
Fig. 13.3
Fig. 13.4
Fig. 14.1
Fig. 14.2
Fig. 15.1
Fig. 15.2

Government expenditures, revenues, deficit, debt
and the output gap (Percentage of GDP) 159
Short term interest rates for Greece and Germany,
the Greek real rate and the long spread between
Greece and Germany 163
Sovereign rating and political events
in Greece 2009–2015 192
Sovereign rating Greece vs Ireland 2009–2015 192
Sovereign rating Greece vs Portugal 2009–2015 193
Sovereign rating Greece vs Spain 2009–2015 193
Sovereign rating Greece vs Italy 2009–2015 194
Sovereign rating scale PIIGS 2009–2015 194
Impulse response functions driven by the fiscal
austerity package 213
Dynamic paths of fiscal policy instruments 214
Deterioration in property rights in Greece (2002–2015) 215
TFP in tradable and non-tradable sectors “shaped”
by the deterioration in property rights 216
Impulse response functions driven by the fiscal
austerity package and the deterioration in property rights 217
Impulse response functions of the economy

with underground activities 254
Comparison with and without the underground
economy256
Simulation of fiscal consolidation mix in Greece 258
The effects of an adverse demand side shock 274
Growth and unemployment rates in Greece, 1960–2015 278
Evolution of NPLs by type of loans 297
Changes in NPLs by type of loans 298
Change in ROA and LTD, and equity growth rate 298
Unemployment rate and CPI seasonally adjusted 299
Quality of Greek manufacturing exports by sector,
1998–2012320
Aggregated quality index of Greek manufacturing
exports and manufacturing exports as % of GDP,
1998–2012321
Evolution of regional disparities and spatial association 339
Decomposition of LISA scores and their evolution
over time 347


List of Tables

Table 1.1
Table 2.1
Table 2.2
Table 4.1
Table 4.2
Table 6.1
Table 6.2
Table 7.1

Main macroeconomic indicators
7
Changes in the debt to GDP ratio (%) 44
European Summits, May 2010–End 2012 52
How to get out of debt, by Wolfgang Schäuble 73
Social protection in Greece 84
Notable phrases spoken by the three economists 141
Impact of austerity policies on the Greek economy 142
Economic and political influences on fiscal policy
yt (i) = α + β(i)gapt (i) + γ (i)t + et (i)161
Table 8.1 Sovereign rating grades 183
Table 8.2 Data definitions 186
Table 8.3 Regression results for Fitch 188
Table 8.4 Regression results for S&P 189
Table 8.5 Regression results for Moodys 190
Table 8.6 Regression results for Average rating 191
Table 9.1 Steady-state solution and data averages 2000–2009 210
Table 9.2 Changes in the main macro variables 2015–2009 (%) 211
Table 12.1 Unemployment and growth rate in Greece
in the before and after 2009 277

xxiii


xxiv    
List of Tables

Table 12.2 Estimation of the Okun’s Law for Greece, 1960–2015.
Dependent variable is the growth rate of unemployment

Δln ut282
Table 12.3 Jobs created and years for recovery based
on Okun’s law estimates 285
Table 13.1 Correlation coefficients 299
Table 13.2 Single equation estimates of the model without a break 302
Table 13.3 System (SUR) estimates of the model without a break 303
Table 13.4 System (SUR) estimates of the model with a break 304
Table 14.1 Export quality and firm-level labour structure 326
Table 14.2 Export quality and interactions of labour structure
with destination characteristics 327
Table 15.1 Regional convergence and spatial conditioning,
by period 340
Table 15.2 Incidence and location of significant LISA clusters 344
Table 16.1 Composition of total exports of goods
in Greece, 1980–2009 361
Table 16.2 Value-Added shares to GDP (%) of aggregate sectors
in Greece 362
Table 16.3 Export and R&D intensity (%) of aggregate sectors,
1970–2009363
Table 16.4 Technical change, Unit labour costs and export
market shares in EU14, 1980–2009 365


Part I
Introduction and Political
Economy Approaches


1
Introduction

Christopher Tsoukis, Ioannis Bournakis,
Dimitris K. Christopoulos and Theodore Palivos

1.1Introduction
After brewing for some months, the Greek sovereign debt crisis finally
erupted fully in May 2010. Seven years later, at the time of writing
C. Tsoukis 
Economics and Finance, Keele Management School, Keele University,
Keele, UK
e-mail:
I. Bournakis (*) 
Department of Economics, Middlesex University, London, UK
e-mail:
D.K. Christopoulos 
Department of Economic and Regional Development,
Panteion University, Athens, Greece
e-mail:
T. Palivos 
Athens University of Economics and Business, Athens, Greece
e-mail:
© The Author(s) 2017
I. Bournakis et al. (eds.), Political Economy Perspectives on the Greek Crisis,
DOI 10.1007/978-3-319-63706-8_1

3


4    
C. Tsoukis et al.

(Spring 2017), the process that was set in train in 2010 is not yet over.
With GDP in real terms down about 25% from pre-crisis levels, living
standards having dipped further still due to the high taxation, unemployment close to the 25% and youth unemployment nearly 60%,
poverty and inequality rising, and debt persisting at 180% of GDP
despite an unprecedented fiscal consolidation, this crisis will not be a
mere footnote in the country’s tumultuous recent history. Apart from its
own narrative, the Greek crisis and bailout process are intertwined with
the global financial crisis of 2007–2009 (to which some say it is a successor), the structure of the Eurozone (the architectural weaknesses of
which may be linked to the crisis) and the behaviour of other countries
in the Eurozone’s southern flank (which underwent crisis of a different
order of magnitude but of a broadly similar nature). Thus, an examination of the Greek crisis and bailout process has the potential to shed
light not only on the weaknesses of a peripheral Eurozone country and
on the mechanisms put in place by the EU and Eurozone to deal with
it, but also on the nature of the Eurozone and the pressures it places on
policy-making.
The book in hand aims to examine the country’s features that have
played a role in the emergence and unfolding of the crisis as well as
shedding light on the crisis itself and its effects. While there is a wealth
of related academic literature, popular writings and op-ed commentary in dealing with this experience and analyzing the issues and open
questions, as yet there are few efforts to present an integrated analysis
of this experience. The present volume aims to fill this gap. The book
and its 16 chapters are broadly based, offering political-economy, macroeconomic as well as sectoral and other perspectives on the country,
its recent economic history, the experience of the crisis and prospects.
They are written in a way that straddles academic style and more popular writing and should, therefore, be of interest to wide audiences.
This chapter introduces the volume and provides background information to the Greek crisis. Reflecting the broad nature of the volume,
it, too, is quite wide-ranging. It discusses the country’s recent macroeconomic performance, possible reasons as to why the country found itself
in such difficulties (beyond the immediate reason that public finances
became unsustainable), it places the Greek crisis in the context of the