Executive summary

• Author: Andersen, Benny
• Pages: 5-7

T H E C R I S I S I N G R E E C E : M I S S T E P S A N D M I S C A L C U L A T I O N S | 5

Executive summary

G       

combination of factors but was fundamentally a crisis of values,

allowing the build-up of unsustainable macroeconomic and

financial imbalances. Any sustainable crisis solution nee ded

comprehensive, sustained values resolution, which was uneven

and slow in coming in Greece. The roots of the values crisis

developed from home -grown social and political issues, as well

       G 

economy. Perennial causes for concern were deep-seated

corruption, weak institutions, sustained tax evasion,

overgenerous pensions, high public salaries, and excessive state

spending.

The crisis in Greece was

fundamentally rooted in a crisis

of social values that paved the

way for unsustainable

macroeconomic and financial

imbalances. Corruption, weak

institutions, tax evasion, and

excessive spending persisted for

decades.

Various social practices had become deeply engrained in Greek

      

       

example in hiring decisions and property deals. For decades,

Greek policymakers had been unwilling to cut public

expenditures, with a large share flowing towards specific interest

groups connected to parties in power; and they had closed their

eyes to widespread tax evasion. Besides this, weak data and

misreporting incidents weakened trust between Greece and its

partners and creditors.

Intertwining interests, bribes,

and political favours have been

deeply engrained in the Greek

society. Data misreporting

incidents weakened trust.

These issues remained fundamentally unchanged for decades,

together with politics focusing on the short-term. In an

environment of easy access to cheap financing, this facilitated

the accumulation of severe macroeconomic imbalances

domestically and externally, including a prolonged declining

trend in the national savings rate. Key factors underlying the

crisis were a failure to address deep-seated structural problems,

easy access to structural funds following EEC/EU membership

and, later, minimal borrowing constraints after Greece entered

the euro area. Euro area institutional shortcomings played a role,

notably weak discipline and insufficient enforceability of

economic policy rules. An approach that addressed imbalances

by only using macroeconomic and financial policies was akin to

giving painkillers to a patient needing surgery  like treating a

competitiveness issue with just an exchange rate devaluation.

Instead of disappearing, the underlying problem resurfaces with

renewed strength.

Easy access to cheap financing

and euro area institutional

shortcomings also played a role.