Austerity, Assistance and Institutions: Lessons from the Greek Sovereign Debt Crisis

Abstract

This paper studies the Greek sovereign debt crisis in the aftermath of the 2007-8 global financial crisis looking for barriers to, and engines of, growth. The vehicle is a calibrated medium-scale micro-founded macroeconomic model. Departing from 2008, our simulations show that the adopted economic adjustment program (the fiscal austerity mix combined with the fiscal and monetary assistance provided by the EU, ECB and IMF), jointly with the observed deterioration in institutional quality (the degree of protection of property rights) can explain most (around 22 % of GDP) of the cumulative loss in GDP in the data (around 26 % of GDP) between 2008 and 2016. In particular, the economic adjustment program can explain a fall of around 12 % , while the deterioration in property rights accounts for another 10 % . Counterfactual simulations, on the other hand, show that this loss could have been around 9 % only, if the country had followed a different fiscal policy mix; if the degree of product marker liberalization was closer to that in the core euro zone countries; and, above all, if institutional quality in Greece had simply remained at its pre-crisis level. On the other hand, in the absence of the official fiscal bailouts, the depression would be much deeper, while, the accommodative role played by the quantitative policies of the ECB has been vital to the Greek economy. These results can be useful in the face of the ongoing covid-19 crisis. Supplementary Information The online version contains supplementary material available at (10.1007/s11079-020-09613-3)

Explaining the cross-country differences in the economic fallout during the COVID-19 pandemic crisis

“…1 The modelling approach follows Economides et al (2021) and Angelopoulos et al (2009). In their set-up, households divide their work effort between productive work and anti-social or rent-seeking activities and compete with each other for a fraction of a contestable prize.…”

“…3 See among many others Coenen et al (2008), Uhlig (2010) and Drautzburg and Uhlig (2015). For the Greek economy, see Papageorgiou (2012), Dellas et al (2017), Papageorgiou and Vourvachaki (2017), Gourinchas et al (2017) and Economides et al (2017Economides et al ( , 2021.…”

The ECB's Policy, the Recovery Fund and the Importance of Trust: The Case of Greece

“…In our solutions throughout the paper, we assume that all this is common knowledge so that we solve the model under perfect foresight by using a non-linear Newton-type method implemented in Dynare. 31 3 Calibration, data and solution for the year 2019 Subsection 3.1 presents parameter values and the data used. 32 Then, subsection 3.2 will present a solution for the year 2019 which was the last year before the burst of the pandemic.…”

“…1 Thus, we believe our work is more than a country study. The model used here builds on the models developed by Economides et al (2021aEconomides et al ( , 2021b. However, Economides et al (2021a), as well as Papageorgiou and Tsiaras (2021), have studied the Greek sovereign debt crisis of the previous decade, 2 while, Economides et al (2021b) have studied the Greek pandemic crisis in a real model without monetary policy.…”

ESG risks: a new source of risks for the banking sector

“…3 See among many others Coenen et al (2008), Uhlig (2010) and Drautzburg and Uhlig (2015). For the Greek economy, see Papageorgiou (2012), Dellas et al (2017), Papageorgiou and Vourvachaki (2017), Gourinchas et al (2017) and Economides et al (2017Economides et al ( , 2021.…”