Greece: How to take a turn for the better

Klaus Schrader, David Benček and Claus-Friedrich Laaser

No 83, Kiel Policy Brief from Kiel Institute for the World Economy (IfW Kiel)

Abstract: [A new chapter of the Greek crisis?] Already at the turn of the year 2012/2013 the Eurogroup and the European Commission heralded the message that the worst crisis in Greece would be over. According to this message, the Greek government had delivered the promised steps of structural and fiscal reforms and had agreed with a tough timetable for further reforms (EU Commission 2013a: 56). But until attaining the break even point in the Greek tragedy it took one more year: In the course of the year 2014 there were evidence that Greece’s economic situation would turn for the better – highlighted by the first positive growth rate since the beginning of the crisis, a current account surplus and a primary surplus of the Greek state budget as well as progressing structural reforms that improve the conditions of doing business in Greece. The reform and austerity policy of the coalition government supervised by the troika of EU, IMF and ECB seemed to pay off. But the early elections on January 25, 2015, resulting in a landslide victory of the left wing Syriza party challenge the previous fiscal and economic policy of Greece and the policy targets set by the troika. The new political leaders argued during the election campaign that the Greek people have sacrificed enough without benefiting from any improvements by “troika policies”. A return of welfare policies, increased public spending, the correction of reforms and a hair cut would be a more promising policy mix in favor for a recovery of the Greek economy. Against the backdrop of these conflicting perceptions we try to find out how far Greece has already taken a turn for the better. We answer the questions what has been already achieved and what kind of deficits still persist. From our findings we derive what could be appropriate policy tools to overcome the Greek crisis.

Date: 2015
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