Greece: A Case Study of Myths and Development Periklis Gogas Assistant Professor of Economic Analysis and International Economics Department of Economics 1 Democritus University of Thrace
The reality Sections Myths and reality The Greek competitive advantage Entrepreneurship Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 2
CASE STUDY GREECE SWOT Analysis Internal environment: o Strengths o Weaknesses External environment: o Opportunities o Threats Strategies: o Strengths to Threats o Opportunities to Weaknesses Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 3
Production Capacity Utilization Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 4
GDP Growth Rate Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 5
Per Capita Income Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 6
Unemployment Rate Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 7
Change in Retail Sales Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 8
10 Year Bond Return Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 9
The Debt Problem Is the debt something new? When did the problem start? How did it progress? Is ti something that shouldn t be concerning Greek governments in the decades before the crisis? Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 10
The Situation Before the Crisis The Good News Stable GDP growth rates High production capacity utilization Low unemployment The Not so Good News A high debt rate as % of GDP High deficits as % of GDP Increasing trend for both Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 11
Greek Public Debt World ranking of public debt in 2012 Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 12
Greek Public Debt World ranking of public debt in 2000 Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 13
Analysis of Current Debt IMF 27.9 3.83 Memorandum 1 52.9 0.81 EFSF 133.0 1.55 Central Banks 9.3 4.80 Private sector in PSI 29.5 2.00 Private sector non-psi 3.0 4.70 Treasury bills 15.0 4.20 ECB 28.0 4.75 European Inv. Bank 7.0 3.00 Bank of Greece 5.0 0.50 Other (guarantees, etc) 11.4 4.00 Total 322.0 2.29 Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 14
Myths and Realities for Greece The myth for the Mexican: lazy, siesta Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 15
Myths and Realities for Greece The myth for Greeks: lazy, laid back Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 16
Myths and Realities for Greece Myth: The lazy Greeks Reality: o According to OECD data Greeks are the hardest working! o Greeks work an average 50% more than Germans! Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 17
Μύθοι και Αλήθειες για την Κρίση Real annual working hours in OECD countries Greece! Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 18
Myths and Realities for Greece Myth: reduction in wages to increase competitiveness Reality: o Labor costs represent only 5-10% of the final price in Greece o Most important costs and impediments according to business people: Taxes, tariffs and other indirect costs Bureaucracy Corruption Scarcity in R&D funding o Labor cost is not the key factor o Germany, Sweden, Canada: high wages and high productivity o Bulgaria, Albania, Romania: low wages, low productivity Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 19
Myths and Realities for Greece High productivity countries: o Germany, Sweden, Canada, Japan is this due to low wages? Low productivity countries: o Bulgaria, Albania, Romania is this a result of high wages? Something doesn t add-up! Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 20
Myths and Realities for Greece Myth: The return to the drachma Reality: o There is no return! o It will be a new currency no matter how we call it! o It is not the euro to blame for this debt crisis! o Huge debt increase in the drachma era o Stable debt after the adoption of the euro Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 21
Myths and Realities for Greece Public debt as % of GDP and prime ministers DRACHMA EURO Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 22
Myths and Realities for Greece Myth: the 50s- 60s growth was due to the drachma Reality: o Huge growth rates for Greece: 6-7% o But: o Drachma was not a free float: it was pegged to the USD with a constant rate GRD 30 / 1 USD o Bretton Woods was similar to the euro today o No independent monetary policy o Growth was due to: Monetary stability Minimum inflation Minimum deficits Capital inflows as a result of monetary and fiscal stability Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 23
Myths and Realities for Greece Myth: Iceland recovered after the default Reality: o Was not a public debt crisis but a banking sector one o Applied to join the Eurozone. o Considered to adopt the Canadian dollar. Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 24
Myths and Realities for Greece Myth: Argentina is better off after ousting the IMF Reality: o It closely cooperates with the IMF o Argentina: 70 billion o Greece: 360 billion o 30% of Argentina s citizens lives below the poverty line o The middle class has disappeared o The national currency has depreciated to 1/5 o Inflation high: at 22% Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 25
Myths and Realities for Greece Myth: Greece must become self-sufficient Reality: o Self-sufficiency = poverty and low standards of living o Adam Smith: absolute advantage o David Ricardo: comparative advantage o With specialization everyone consumes more o No country in the world targets self-sufficiency! Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 26
Myths and Realities for Greece Myth: the Greek comparative advantage is agriculture Reality: probably not! o If ti was there would be no need for subsidies o Subsidies are needed because we are not competitive! o Small farms and mountainous terrain o Without the subsidies Greek agricultural products would have been very expensive for the consumers. Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 27
Myths and Realities for Greece Myth: Greece is a poor country Reality: No! o Greece is designated by OECD and other organizations as a developed industrialized country. o It is one of the 25 richest countries in the world. o Before the crisis it was among the first 20 richest. o In Human Development Indices that measures security, education, health and equality it ranks among the 20 highest countries. Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 28
Myths and Realities for Greece Greece s comparative advantage is the educational level. Technology and Research: Greek universities rank 9 th in the world Greece exports more Space Technology than tomatoes. Agriculture represents a mere 2% of Greek GDP High technology exports represent 12,3% of the total and chemical industry exports 31,6%. Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 29
Research and Technology 38 th in R&D funds 19 th in total scientific publications 13 th in most important scientific publications Better than: oitaly, Canada, Spain, France, etc. 0.6% of the GDP is spent for research 1,9 is the rate for France 1,8% for Canada 1,3% for Spain 1,1% for Italy Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 30
Research and Technology Billion $ for research Ratio to Greece Scientific Publications $ per publication Relative Productivity Canada 24.3 14.29 51107 475,473.03 2.60 Italy 19.0 11.18 48353 392,943.56 2.15 France 42.2 24.82 57320 736,217.73 4.02 Spain 17.2 10.12 44935 382,775.12 2.09 Greece 1.7 1.00 9281 183,169.92 1.00 Source: Nature 2012 Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 31
M.I.T.: Research and Technology 2.22% of professors are Greek Percentage of Greek population in the world: 0,16% 14 times higher representation in MIT faculty than Greek population suggests. Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 32
Research and Technology From the European Commission s Report for Innovation in Europe 2011 we get: Greece 4.2 researchers per 100 workers European average 6.3. But the production of scientific publications compares to the European average (438 and 491 respectively) Top publications: Greek are significantly higher than the average. Περικλής Γκόγκας Επίκουρος καθηγητής ΔΠΘ 33