Greece: Conditions and Strategies for Economic Recovery

Please cite the paper as:
D.B. Papadimitriou, M. Nikiforos, G. Zezza, (2015), Greece: Conditions and Strategies for Economic Recovery, World Economics Association (WEA) Conferences, No. 2 2015, The European Crisis, 1st October to 1st December, 2015


The Greek economy has the potential to recover, and in this report we argue that access to alternative financing sources such as zero-coupon bonds (“Geuros”) and fiscal credit certificates could provide the impetus and liquidity needed to grow the economy and create jobs. But there are preconditions: the existing government debt must be rolled over and austerity policies put aside, restoring trust in the country’s economic future and setting the stage for sustainable income growth, which will eventually enable Greece to repay its debt.

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4 comment

  • Bob Williams says:

    What I am seeing in this paper is an attempt to fit the present crisis to the kind of economic theory that created it and somehow expect a different result because the currency delivery mechanism has been varied. From my understanding, the problem is very different than just a need for an injection of new or different funding for the same structure that was in place before. The problem that has yet to be defined is not capital. There is a lot of that to go around. Ditto with investment. How the old, the recent and potentially new injections are distributed and have been distributed not only in Greece but also throughout the Euro zone is the crux of the problem. Europe is stuck in what I would call a Structural Trap engendered by a skewing of the distribution of wealth that is not now nor has it been in the past addressed. If the Structure of the European Economy as a whole is imbalanced with its member economies a crisis arises and continues until it is addressed. In different economic situations different policies can and are applied to avoid or correct an imbalanced distribution. The vehicles offered in this paper can be useful if and only if the intention is to correct the imbalance. Other policies are applied such as the U.S. use of food stamps, and welfare transfer programs of many types and in Canada equalization payments to provinces achieve the result intuitively but it is the distribution of wealth in the final analysis that is paramount with an eye to a sustainable economic structure.

  • Gennaro Zezza says:

    I do not disagree with your comment on the role of income and wealth distribution. On the other hand, Greece has the problem of how to reverse a huge fall in incom, which calls for an expansion in the components of aggregate demand. Tourism is somewhat responding to the large fall in relative wages in the sector, but we argue that it would not be sufficient to counter the fall in the other components of demand. Taking as a given the willingness of the Greeks to remain in the Euro system, a stimulus can only be financed through external aid, or a parallel currency, not to jeopardize the current account constraints and the memorandum targets on the primary surplus to be achieved (in Euro)

  • Gerson P. Lima says:

    Whoever once red Papadimitriou would certainly expect more than what is offered by this paper. If the intention is to propose fiscal policy as the solution of the Greek crisis, as some others have already done, then this should be placed at first. If and once eventually accepted, how to do fiscal policy will be another step. The problem waiting fixing is not fiscal policy itself but why has it not been done yet and how to make it true.
    Decisions in economics are not made on the basis of “economic technical advices” but for the sake of those who have the power of making decisions or are authorised and rewarded to do so by the beneficiaries. So, statements like “irrational behaviour on the part of the Brussels institutions” only make sense if one imagines that “Brussels institutions” were created to assure equality in wealth and income distributions. Most probably they were created to assure results targeted by the real political power without exposing it. Economists should be aware that no 0.1% person still alive is “money irrational”; the political power has its own vested targets. References on the matter, Marx aside, are very large; for instance, quoted De Grauwe and Sapir paper in this conference and his references are, in my humble opinion, good start.
    About the method, it is not immediate to realise that taking “neutral assumptions on the exogenous determinants” could actually lead the main macroeconomic endogenous variables in a specific model to specific results, and none has been given. Moreover, the exogenous determinants referred to are endogenous variables; so, if I get the point right way your assumptions depend upon other assumptions about the really exogenous variables the government can, with restrictions, actually command, for instance fiscal expenditures. Consider also that, like in monetary models “assumptions” may lead to whatever desired result and make the contribution easy to be discarded by or useless to the decision makers.
    The greatest challenge non-mainstream economists have always been facing seems to be demonstrating – especially to the political power – that a socially compelling concentrated wealth and income distribution keeps people in a country and country-members strangers to each other instead of united against the common enemy, the misery of the many that lead them to fight the few rich.

  • MC Morley says:

    It seems that the two main solutions offered in this article, the “Geuro” and the “Fiscal Credit Certificates” (FCC), could help create what I would call a sort of “gray pool” of finance, that stands in a potentially counter-balancing contrast to the “dark pools” of finance that have been created by the international financial sector. These “gray pool” instruments could help (at least in theory) to offset the harmful, humiliating and degrading plunges in income suffered by the Greek people under imposed austerity measures. There is an urgent need to provide some sort of fiscal policy potential for governments that become trapped by the demands of the larger economic zone policy-makers and the actions of private lenders. The presence of a such a “gray pool” seems to have an underlying logic of moral necessity in protecting the human rights of citizens of countries vulnerable to the exploitative potential of the movements of capital caused by players with interests in dark pool financial instruments that bet on such things as the Greek government’s failure to pay debt. If government bonds can be hedged (in dark pools) with value protected for investors, why can there not also be innovative ways to protect the value of human life, such as with the Geuro and FCCs?