19 June 2015

Bruegel: “Is Greece Destined to Grow?”

In some aspects Greece has improved a lot. In the ease of doing business indicator, Greece’s ranking has risen from 108th in the world in 2008, to 62nd in 2015 (Figure 2). Greece has made significant progress, but there is still a long way to go.

Yet my positive assessment is conditional on a comprehensive and credible agreement, which would eliminate the risk of Grexit not just for now, and also on continued structural reforms, which seem politically difficult. If the agreement is not sufficiently comprehensive and credible, then uncertainty will continue and growth may not resume.

Zsolt Darvas

Interesting assessment of the economical situation in Greece, based on concrete historical data. Clearly there has been some progress in the years following the crisis, under the strict supervision of the ‘Troika’. Unfortunately, with the new populist government in place, these small steps towards recovery are threatened by contra-productive rhetoric and stalling. Despite the voters’ hopes and Syriza’s promises, I fear that renouncing the IMF agreement will hurt Greece much more that accepting the debt and the need for quick and drastic economic reform.

Greece vs EU Unit labour cost developments
Figure 4: Unit labour cost developments (2000Q1=100), 2000Q1-2015Q1
Source: updated dataset by Darvas, Zsolt (2012b) ‘Compositional effects on productivity, labour cost and export adjustment’, Bruegel Policy Contribution 2012/11

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