Greek Business File, April-May 2020, No 125

GBF reports


In the dawn of the post-memorandum era, the Greek economy is facing the diffi cult challenge of maintaining an appetite for reform as a result of choice and no longer of enforcement. This is what Professor Panos Tsakloglou (Athens University of Economics and Business) and the Bank of Greece offi cial Marianthi Anastasatou claim in their recent research study.

The study is focused on the latest reforms, meaning those having an impact on the fiscal policy, which are adopted according to the criterion of the extent of each intervention’s fi scal footprint. Through their study, the researchers were seeking to answer the key question of “how these changes have aff ected the way in which the state plans, implements and monitors its policies”. They have also examined two sectors characterized by increased expenditure beyond the core public sector: the sectors of insurance funds and health.

Twin deficits

Professor Panos Tsakloglou claims that: “When the crisis erupted, even if there was fi scal defi ciency of refinancing borrowing, I think that the economy was essentially facing a problem of competitiveness. After all, what ignited the crisis was the fi scal defi cit and the markets’ defi ciency to refinance the debt. However, in the same period, apart from the budget balance deficit, a huge current account deficit was reported. In other words, we were attesting what we economists call, “twin deficits”. Those defi cits were far more important than the classic twin deficits that we observe in a country in crisis, even in a developing country. At the end of 2008, the current account deficit exceeded 15%! The following year the budget deficit was more than 15%.”

This great imbalance results from the lack of competitiveness which “in turn is due to lack of reform after the entry of Greece in the Eurozone”, according to P. Tsakloglou. One of the study’s main conclusions is that “no country has made as many reforms as Greece within the period of the Memoranda”. However, the extremely low start line, as well as the continuing adoption of reforms by other countries, not only show that there is no room for complacency, but also warn us of the need to continue structural changes.

Cuts of wages and pensions

By choosing to focus on some of the changes, M. Anastasatou refers to the adoption of a unifi ed wage law and the consolidation of insurance funds. These two changes have provoked tremendous reactions and, to a large extent, the public discussion has not focused on their structural character: “The conflict was over the cuts of wages and pensions; however, for the first time uniform wage rules were adopted on the basis of responsibility and performance appraisal for public servants. Regarding the insurance sector, the same rules applied to all funds and then all funds were unifi ed into a single fund (EFKA – Single Social Security Entity)”. A real cosmogony was accomplished in the State General Accounting Service, where “the new rules allowed the worthy staff members to work more efficiently and for this reason the current budgetary data is more reliable.

A budget bomb

P. Tsakloglou claims that there is also a lot of important work to be done in many areas and in many directions as “If we want to remain a society with a high standard of living, we should stay steadily focused on the reform path”. M. Anastasatou, from her point of view, warns that the public expenditure for the social security system remains the highest in the EU, and thus continues to constitute a “budget bomb”. After the consolidation of … titles and structures, a real consolidation of funds should follow.

The endeavour is certainly extremely difficult, as there are always reactions. A typical example is the experience acquired since the Yannitsis reform initiative twenty years ago, as well as the difficulties Macron is facing in order to promote relevant changes in France. However, between 2000 and the present day, more than two thirds of the increase in the public debt are due to the funding of deficits of the pension system. Professor Tsakloglou indicates that “If there was a birth certificate of the crisis, it would not mention 2010 but 2001 – the year when the government of the time was defeated on the issue of reforming the insurance system, and since then all the efforts for important reforms were abandoned to a great extent”.

The problem in the health sector

Regarding the health sector, the problem lies at the hospital-centred character of the health care system. In Greece, either you will have to guess your health issue in order to visit the appropriately qualified doctor, or the hospitals will be burdened with your treatment. As a result, as well as due to the over prescription, the expenses for medication and hospitalisation as a percentage of the GDP are higher than in other EU countries. On the contrary, as M. Anastasatou points out, Greece is still substantially below other EU countries in respect of expenditures for preventive medicine, long-term care and primary care. “There is need for new structures, such as the family doctor and small health centres. In addition, as the average life expectancy of the population is increasing and societies are getting older, appropriate care structures are needed for the chronically ill to prevent hospitals from overcrowding and avoid the waste of resources, either public (the stay in hospitals is much more expensive than in long-term care units) or private (e.g. relatives taking care of the patient, very often in the wrong way).”

The “Achilles’ heel of the Greek economy

Apart from the findings of the above research study, there is also a margin for new interventions and new useful changes in the regulatory framework of the private sector. Progress has been made in this direction, although there are pending issues. The adoption of modern rules and practices of corporate governance present a typical example; however, the extremely small size of the vast majority of the companies operating in Greece certainly has a detrimental eff ect on their establishment. According to P. Tsakloglou, this is the “Achilles’ heel of the Greek economy, often leading to contribution evasion, tax evasion, violation of labour and environmental legislation”.

It is possible that some solutions and a new dynamism arise from the changes resulting from the 4th industrial revolution, which would coordinate with the small-scale environment. P. Tsakloglou is also optimistic about the future impact of these changes on employment, as “the markets may destroy jobs; however, in the long run, they may create new jobs, possibly more than the destroyed ones”.