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Can Greece be saved? Current Account, fiscal imbalances and competitiveness

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  • Platon Monokroussos
  • Dimitrios D. Thomakos
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    Abstract

    Drawing on the existing literature on national saving and investment we attempt to identify and empirically analyze the main drivers of Greece’s current account position in recent decades and, especially, in the years following the euro adoption. Our results seem to provide broad-based support to the key findings of a number of earlier empirical studies on the determinants of Greece’s current account position. More specifically, the significant deterioration in the country’s current account position in recent years can be attributed to, among others: (i) accumulated loss of economic competitiveness against main trade-partner economies; (ii) pronounced fiscal policy relaxation following the euro adoption; (iii) the completion of domestic financial sector liberalization in the mid-90s and enhanced financial deepening post the country’s euro area entry. To assess the capacity of the new EU-IMF economic adjustment programme to stabilize Greece’s external position, we utilize our estimated econometric models to produce out-of-sample forecasts for the evolution of the current account in 2012-2016. Specifically, we examine a number of alternative scenarios encompassing varying degrees of policy-adjustment and success rates in implementing the agreed reforms. Assuming a broadly satisfactory pace of programme implementation, we forecast a steady improvement in the country’s current account position in the years ahead. This is deemed to be an important prerequisite for stabilizing and gradually starting to reduce Greece’s external debt, from what currently appear to be unsustainable levels.

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    File URL: http://www.lse.ac.uk/europeanInstitute/research/hellenicObservatory/CMS%20pdf/Publications/GreeSE/GreeSE-No59.pdf
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    Bibliographic Info

    Paper provided by Hellenic Observatory, LSE in its series GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe with number 59.

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    Date of creation: Jun 2012
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    Handle: RePEc:hel:greese:59

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    Related research

    Keywords: competitiveness; current account deficit; fiscal deficit; Greece; IMF.;

    References

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    1. Yannis Kechagiaras, 2012. "Why did Greece block the Euro-Atlantic integration of the Former Yugoslav Republic of Macedonia? An Analysis of Greek Foreign Policy Behaviour Shifts," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 58, Hellenic Observatory, LSE.
    2. Anastassios Chardas, 2012. "Multi-level governance and the application of the partnership principle in times of economic crisis in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 56, Hellenic Observatory, LSE.
    3. Melina Skouroliakou, 2012. "The Communication Factor in Greek Foreign Policy: An Analysis," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 55, Hellenic Observatory, LSE.
    4. Nicholas Apergis, 2011. "Characteristics of inflation in Greece: Mean Spillover Effects among CPI Components," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 43, Hellenic Observatory, LSE.
    5. Elpida Prasopoulou, 2011. "In quest for accountability in Greek public administration: The case of the Taxation Information System (TAXIS)," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 53, Hellenic Observatory, LSE.
    6. Vassilis Monastiriotis & Yiannis Psycharis, 2011. "Without purpose and strategy? A spatio-functional analysis of the regional allocation of public investment in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 49, Hellenic Observatory, LSE.
    7. Eugenia Markova, 2010. "Effects of Migration on Sending Countries: lessons from Bulgaria," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 35, Hellenic Observatory, LSE.
    8. Horen Voskeritsian & Andreas Kornelakis, 2011. "Institutional change in Greek industrial relations in an era of fiscal crisis," LSE Research Online Documents on Economics 41758, London School of Economics and Political Science, LSE Library.
    9. Efi Vraniali, 2010. "Rethinking public financial management and budgeting in Greece: time to reboot?," LSE Research Online Documents on Economics 29097, London School of Economics and Political Science, LSE Library.
    10. Platon Tinios, 2010. "Vacillations around a pension reform trajectory: time for a change?," LSE Research Online Documents on Economics 27674, London School of Economics and Political Science, LSE Library.
    11. Horen Voskeritsian & Andreas Kornelakis, 2011. "Institutional Change in Greek Industrial Relations in an Era of Fiscal Crisis," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 52, Hellenic Observatory, LSE.
    12. Stelios Karagiannis & Yannis Panagopoulos & Prodromos Vlamis, 2010. "Symmetric or asymmetric interest rate adjustments? Evidence from Greece, Bulgaria and Slovenia," LSE Research Online Documents on Economics 29168, London School of Economics and Political Science, LSE Library.
    13. George Pagoulatos & Nikolaos Zahariadis, 2011. "Politics, Labor, Regulation, and Performance: lessons from the privatization of OTE," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 46, Hellenic Observatory, LSE.
    14. Antigone Lyberaki, 2010. "The record of gender policies in Greece 1980-2010: legal form and economic substance," LSE Research Online Documents on Economics 28437, London School of Economics and Political Science, LSE Library.
    15. Elias Katsikas & Theodore Panagiotidis, 2010. "Student Status and Academic Performance: an approach of the quality determinants of university studies in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 40, Hellenic Observatory, LSE.
    16. Antigone Lyberaki, 2010. "The Record of Gender Policies in Greece 1980-2010: legal form and economic substance," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 36, Hellenic Observatory, LSE.
    17. Stelios Karagiannis & Yannis Panagopoulos & Prodromos Vlamis, 2011. "Symmetric or Asymmetric Interest Rate Adjustments? Evidence from Southeastern Europe," Review of Development Economics, Wiley Blackwell, vol. 15(2), pages 370-385, 05.
    18. Alexis Heraclides, 2011. "The Essence of the Greek-Turkish Rivalry: National Narrative and Identity," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 51, Hellenic Observatory, LSE.
    19. Spyros Skouras & Nicos Christodoulakis, 2011. "Electoral Misgovernance Cycles: Evidence from wildfires and tax evasion in Greece and elsewhere," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 47, Hellenic Observatory, LSE.
    20. Efi Vraniali, 2010. "Rethinking Public Financial Management and Budgeting in Greece: time to reboot?," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 37, Hellenic Observatory, LSE.
    21. Stella Ladi, 2012. "The Eurozone Crisis and Austerity Politics: A Trigger for Administrative Reform in Greece?," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 57, Hellenic Observatory, LSE.
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    Cited by:
    1. Helen Caraveli & Efthymios G. Tsionas, 2012. "Economic Restructuring, Crises and the Regions: The Political Economy of Regional Inequalities in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 61, Hellenic Observatory, LSE.
    2. Manussos Marangudakis & Kostas Rontos & Maria Xenitidou, 2013. "State Crisis and Civil Consciousness in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 77, Hellenic Observatory, LSE.

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