The Impact of the Great Recession on the Euro Area: the Impossible Adjustment of Greece

Andrei Radulescu

Ovidius University Annals, Economic Sciences Series, 2012, vol. XII, issue 3, 14

Abstract: At present the Euro Area is confronted with the persistence of the sovereign debt crisis. Despite the amount of measures implemented by the policymakers over the past years, the adjustment process is tough and seems impossible in several countries (for instance Greece, where the GDP contracted for the 17th quarter in row). In fact, these economies risk becoming permanent asymmetric shocks at the Monetary Union level. In this paper I estimate the evolution of the potential GDP in Greece during the period 1996-2011 by employing the Cobb-Douglas methodology. According to the results, the potential GDP of Greece turned negative after the shock of the 2008 global liquidity crisis. This indicator deteriorated severely afterwards, as the capital investment contracted, with negative impact for the total factor productivity. One can draw an important conclusion from this analysis: the European policymakers should take active measures for the relaunch of the investment flows in Greece in other Southern economies.

Keywords: Greek economy; potential GDP; Cobb-Douglas. (search for similar items in EconPapers)
JEL-codes: E32 E62 H30 H60 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:ovi:oviste:v:xii:y:2012:i:3:p:14

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