European Union failures in Greece and some possible explanations By

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3.2 Structural reforms in reverse

In the late 1970s, the few domestic economists who were openly supporters of the free market economy reckoned that, despite the high adjustment costs that would be involved, full membership in the EEC was valuable and useful because, as, at last, Greek governments would be forced to introduce structural reforms in the directions foreseen by the Treaty of Rome. They were badly disappointed. Soon after the Pan-Hellenic Socialist Movement (PASOK) took over in 1981, Papandreou’s government started to replace competition by administrative controls in every market that had escaped the “socialmania”9 after 1974. They introduced direct price controls in a wide range of markets. They expanded the range of the so-called “closed” professions and promoted -with taxpayer money- the formation of labour unions. They nationalised Skaramanga Shipyards and named them “Peoples Shipyards”. They established state enterprises to promote barter trading and to control the prices of imported goods like, coffee. They attempted, unsuccessfully, to abolish intermediation in farm produce; and in general with their policies they showed their disdain for the fundamental market principles the EU stands for.

I did not mention above the indirect nationalisation in 1983 of 67 by then problematic business concerns, with the presumptuous intention to return them to the private sector after restructuring.10 I did it intentionally because I wished to stress that, even though this policy was profoundly in violation of the Treaty of Rome, the relevant EU Authorities stayed away and did nothing to prevent it. For, here you had a state organisation saving private enterprises from bankruptcy, thus diluting competition and promoting a policy which benefited the politicians, the shareholders and the workers involved, and sent the bill to the taxpayers.11

At the end of the 1980s the structural divergence of Greece peaked and mainstream politicians, who worried about the continuing stagnation of economic growth and the huge public deficits that pushed public debt to unsustainable levels, started to talk about market-oriented structural reforms. The first government that embraced liberalisation, deregulation and privatisation was the one under Prime Minister Constantine Mitsotakis, which governed from 1990 to1993. However, as it was burdened with the mess left over by Papandreou’s governments and ministers from the old statist guard, it didn’t accomplish much in the above fronts;12 nor were any meaningful structural reforms undertaken by the governments that followed, even though Prime Minister Costas Simitis, as head of subsequent PASOK governments, committed very frequently to act. Thus, with the full acquiescence of the EU Authorities, the structure of the Greek economy became exceedingly unfit for survival in the competitive environment of world and EU markets.13

3.3 Scary imbalances

In recent years there has been a lot of talk about the so-called “Greek statistics”. In Bitros (2013) several economists take a look at the statistics that are available to domestic and international researchers and find no irregularities, with the exception of a few times series which are politically sensitive. In this category falls the time series of public deficits, because Greece is suspected of having met the limit set by the Treaty of Maastricht untruthfully, i.e. by understating the size of the deficit in the budget of the central government in the observation year 1999. However, even though the doubts expressed by Eurostat in this respect are legitimate under the light of the available evidence, this debate is beside the point, because there were plenty of data out there which showed that Greece was diverging, and hence its admission into the Eurozone ought to have been delayed or even abandoned.

For a solid example, consider the time paths of the main components of the external balance, which are exhibited in Figure 1. From this it turns out that after 1985 Greece lost competitiveness to such an extent that by 2001 its deficit in the Balance of Payments was close to 15% of Gross National Product (GNP). By virtue of this all-inclusive index of performance, any economist would have concluded that the economy of Greece was marred by wide imbalances, structural and otherwise, that the country was marginalised by European and global competition, and that her governments worsened the situation because of their hard core statism and their ideological abhorrence of free markets. Yet, against all warnings, the EU in 2000 gave Greece the green light to enter into the EMU.

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