From Grexit to Growth: On Fiscal Multipliers and how to End Recession in Greece

Abstract

The author is grateful to two anonymous referees for their suggestions on an earlier draft and to participants at seminars held at AUEB, LSE and Warwick for their comments and discussion. The usual disclaimer applies. Proposals on how to deal with the Greek debt and views expressed in this article are solely those of the author, without implicating or representing any other person or organisation. from grexit to growth: on fiscal multipliers and how to end recession in greece nicos christodoulakis* Three years after the implementation of the Adjustment Programme for Greece, public debt remains at unsustainable levels. Despite recent improvements in meeting deficit targets and the fact that the risk of exit from the Euro Area has subsided, growth is still missing and unemployment has surpassed 25 per cent, causing major social tensions. The paper argues that a critical parameter of such failure was that the Programme grossly underestimated the adverse effects that fiscal correction might have on growth. Fiscal multipliers are found to be significant in the Euro Area so that fiscal cuts had strong and permanent Keynesian effects, rather than a transitive and minor downturn as initially assumed. In light of this, the paper argues that policies should now concentrate on enhancing growth and by relaxing fiscal targets allow the multipliers to raise activity as the only route to safeguard the exit from recession and ensure sustainability of debt.

Fiscal consolidation in times of crisis: is the sooner really the better?

“…Nevertheless, the social costs as well as the cost in terms of fiscal balance could make this adjustment unrealistic. Christodoulakis (2013) shows that fiscal austerity in Greece has been self-defeating. For Greece, Italy, Portugal and Belgium, austerity measures planned would indeed require structural primary surpluses above 3% of GDP for many years, which has rarely been achieved in history of fiscal consolidation.…”

Do Economic Adjustment Programmes Set Conflicting Objectives? The Case of Greece

“…Fiscal multipliers being much higher than forecasted could provide an explanation [76]. To this end, more emphasis should have been placed in boosting growth and easing fiscal adjustment [77]. the growth rate.…”

Assessing the impact of liberalisation policies on the Greek labour market: an insider–experts' view from the perspective of the varieties of liberalisation

“…The discussion on the effects of deregulation policies on the labour market itself in Greece is conspicuous by its absence in public debate or research. The dominant perception is that the aims of the adjustment programme were mainly fiscal, while the pace of the implementation of the structural reforms was low (Christodoulakis, 2013; Rogers and Vasilopoulou, 2012). Although some attention has been given to the spill‐over effects of austerity measures on unemployment and social welfare (Adam and Papatheodorou, 2016; De Beer, 2012; Dosi et al ., 2016), the literature lacks an in‐depth study of the effects of the structural adjustment programme on the labour market itself.…”