An Evaluation of Policies for Fiscal and External Sustainability during the Recent Greek Economic Crisis

Chronis, Panagiotis and Zombanakis, George A. (2016): An Evaluation of Policies for Fiscal and External Sustainability during the Recent Greek Economic Crisis. Published in: European Research Studies , Vol. XIX, No. 1 (30 January 2016): pp. 30-47.

Abstract

The scope of this note is to point out that high growth rates must be accompanied by current account surpluses financing the internal debt service as a necessary and sufficient condition for a debt-reduction strategy. The recipe is applied in the case of Greece which, looking back at the pre-crisis period, has been experiencing substantial consumption-led growth following extensive foreign borrowing.

• Item Type: MPRA Paper
• Language: English
• Keywords: Twin Deficits, Debt, Sustainability
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy

References

Ali Abbas S. M. and J. E. Christensen (2007) “The Role of Domestic Debt Markets in Economic Growth: An Empirical Investigation for Low-income Countries and Emerging Markets”, IMF Working Paper WP/07/127.

Apergis N. K, P. Katrakilidis & N. M. Tabakis (2000), “Current Account Deficit Sustainability: The Case of Greece”, Applied Economics Letters Volume 7, Issue 9. p. p. 599-603.

Azariades C. Ioannides Y, Pissarides C. (2010) “Development is the Only Solution. Seventeen Proposals for a New Development Strategy”, http://greekeconomistsforreform.com/public-finance Bank of Greece (2014), Monetary Policy Report, June. Athens.

Bardakas (2015) “Strctural and Cyclical Factors of Greece’s Current Account Balance: A Note”, Working Paper, Bank of Greece, (Forthcoming).

Blanchard O, Chouraqui J. C, Hagemann R, Sartor N. (1990), “The Sustainability of Fiscal Policy: New Answers to an Old Question”, OECD Economic Studies, Nr. 15.

Blanchard O. and Giavazzi F. (2002), “Current Account Deficits in the Euro Area: The End of the Feldstein-Horioka Puzzle?” Brookings Papers on Economic Activity 2, p. p. 147-209.

Böwer U, Vasiliki Michou, Christoph Ungerer (2014), “The Puzzle of the Missing Greek Exports”, Economic and Financial Affairs Economic Papers 518, European Commission.

Brisssimis S, Hondroyannis G, Papazoglou C. Tsaveas N, Vasardani M. (2010) “Current Account Determinants and External Sustainability in Periods of Structural Change”, Bank of Greece Working Paper 117.

Bussière M, Marcel Fratzscher Gernot J. Müller (2004), “Current Account Dynamics in OECD and EU Acceding Countries - An Intertemporal Approach”, ECB Working Paper No. 311

Catão L. A. V. and Milesi-Ferretti G. M. (2013), “External Liabilities and Crises” IMF Working paper WP/13/113

Chalk N. and Hemming R. (2000), “Assessing Fiscal Sustainability in Theory and Practice” IMF Working Paper WP/00/81.

Chinn M. D. and E. S. Prasad (2003) “Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration” Journal of International Economics 59 (2003) 47–76

Debelle G. and H. Faruquee (1996) “What Determines the Current Account? A Cross-Sectional and Panel Approach” IMF Working Paper, 96/58, pp. 1-42,

EC (2014A) “The Economic Adjustment Programme of Greece, 4th Review.

EC (2014B) “European Economic Forecasts”, Greeceec.europa.eu/.../forecasts/2014.../el_en.pdf

Freund C. (2005) “Current Account Adjustment in Industrial Countries” Journal of International Money and Finance, Volume 24, Issue 8, December 2005, p. p. 1278 – 1298.

Holman J. A. (2001), “Is the large US Current Account Deficit Sustainable?” Federal Reserve Bank of Kansas City Economic Review, First Quarter.

IMF (1993) Balance of Payments Manual 5TH Edition

IMF (2007) Greece, Selected Issues, Chapter I: “Greece’s Competitiveness Deficit: How Big is it and How Could it Be Unwound?”

IMF (2009) Balance of Payments Manual 6TH Edition

IMF (2013), “Greece: Fourth Review Under the Extended Arrangement Under the Extended Fund Facility and Request for Waivers of Applicability and Modification of Performance Criterion—Staff Report”; Staff Statement; Press Release; and Statement by the Executive Director for Greece”, Country Report No. 13/241, July 2013.

IMF (2014) “Greece: Fifth Review under the Extended Arrangement Under the Extended Fund Facility and Request for Waiver of Nonobservance of Performance Criterion and Rephasing of Access”; Staff Report; Press Release and Statement by the Executive Director for Greece , IMF Country Report No. 14/151

Tressel, T Shengzu Wang, Joong Shik Kang, and Jay Shambaugh, (2014), “Adjustment in Euro Area Deficit Countries: Progress, Challenges and Policies”, IMF Staff Discussion Note 14/07 (Washington: International Monetary Fund).

Pantazides S. (1999), “The Sustainability of the Greek Balance of Payments”, Economic Bulletin, Bank of Greece.

Zombanakis, G. A, C. Stylianou, and A. S. Andreou (2009), “The Greek Current Account Deficit: Is it Sustainable After All?” Bank of Greece, Working Paper 98