The refugee shock: Potential impact on Greece

Text of a talk to an audience of international investors, 3rd December 2015

The refugee crisis is one of those big historic events that are very hard to evaluate as they are happening. We are appalled by the humanitarian tragedy, the uprooted families, the drowning children; but it is very hard to know what the long-term impact will be on our society or on the lives of those refugees and migrants who survive and settle in Europe.

In cases like this, history alone cannot tell us what will happen, because the context is unique and complex. And there is no analytical model that we can use to forecast the whole phenomenon; we can use analytical thinking on some aspects of the process, but only on aspects. The whole involves politics, and economics, and culture, and institutions. It involves local communities, and nation states, and international relations. And it involves the next 3 months as well as the next 30 years.

In the end we can only make an educated guess how the whole will play out.

I will try to contribute to this, as a someone who has been observing the Greek economy from the bottom up, as well as the mentalities and the institutions that shape economic behaviour. Continue reading

Growth for Greece: Ten plus One Points for a Post-Austerity Agenda

We wrote this article with Prof. Karl-Heinz Paqué because we believe that public discourse on the crisis and on the adjustment programmes should now move beyond ideological conflict and national recriminations, and focus on the practical topics of growth policy. Our message is addressed to Greek politicians, as well as to the institutions of the EU and to political leaders in all member states. The paper was presented at an event organized by the Friedrich Naumann Stiftung in Athens on 23rd November 2015.

The setting

The past six years have been hard on the Greek people, as incomes have dropped dramatically, unemployment has rocketed, and a sense of despair has taken hold. The adjustment programs that followed the balance of payments crisis of 2010 failed to stabilize the economy before 2014, and have been widely blamed as being inadequate, wrongly designed or even responsible for the crisis. Whatever the final judgment about past policies may be, it would be wrong to underestimate the adjustment that has actually taken place. Continue reading

Ten tips about Greece

On the eve of the elections (19th September), I spoke at the Monthly Barometer Gathering at Chamonix, in a very condensed format, called Speed Ideas: Ten Tips in Ten Minutes. The audience was investors and policy entrepreneurs from around the world. Here is what I said.


  1. We should see this as a balance-of-payments rather than sovereign-debt crisis
  • Greece had a trade deficit every year since 1962,
  • It had a current account deficit since 1982.
  • The deficit was financed for the most part by borrowing from abroad:
  • The government, borrowed by issuing bonds;
  • And the Greek banks borrowed from foreign banks and they also bought Greek government bonds.
  • The government then spent money on salaries, and pensions, boosting domestic demand.
  • This is what created the trade deficits.
  • The business sector adapted to this long-term imbalance. It focused on the local market, in the so called non-tradable sectors.
  • Such as retail, or construction.
  • The so called internationally tradable sectors shrunk.
  • Exports, as a % of national income, were the lowest in Europe.
  • In 2010, inflows of capital from abroad stopped suddenly, domestic demand dropped, and this started the spiral of the crisis.
  • Ireland, Portugal and Spain were in a similar “sudden stop” situation. They managed deal with this rather quickly, by increasing exports. Greece did not.
  • That is why the crisis has been so deep and long.

Continue reading

Supply side issues in the new Greek programme

This quick note (written as an email to a German friend) highlights issues beyond debt and fiscal targets, that should be considered in shaping the third Greek bailout.

1. There are many SMEs in Greece that had adapted to the crisis by lowering costs to serve a poorer domestic consumer, or who had started having international clients; in my view (which I cannot prove) they would have done well in 2015, which would mean growth in exports, GDP and employment. This prospect was interrupted by the new uncertainty before and after the January elections.

2. Capital controls in banks, plus the real possibility of Grexit, have been the most threatening developments that Greek businesses have witnessed since 2010. Up to now, businesses were hurt by austerity, but at least most reforms were meant to create a more business-friendly environment. But now some of the most resilient entrepreneurs are saying they are thinking of emigrating.

Continue reading

Resilience: notes from the Greek crisis

(Keynote address at the annual European Foundation Conference on 20th May 2015)

Thank you to the European Foundation Centre for inviting me to speak at your conference. I feel very honored to be here. I have the deepest respect for those who actually do something about the problems of this world. I know that the room is full of such people.

I was asked to speak on the general topic of “resilience”, so I had to look it up, to see how the term is used in various disciplines. It seems to be common in psychology, in social work, and also, with regards to the organisation of cities. I have no relation to any of those subjects. So why am I here, speaking about this?

I think it is because I live in a country whose resilience has been tested like no other country in the rich world, recently. Also, I am an economist who has observed and written about the crisis on the micro-level, near to the ground, where resilience is tested. And finally, I am an investor in new businesses in an environment where businesses have been wiped out by the thousands.

So I will speak with all three hats, in sequence: first as a Greek, then as an economist, and finally as an investor. Continue reading

The Sleepwalkers: Germans and Greeks must avoid a Grexit

Karl-Heinz Paqué and Aristos Doxiadis

The German version of this article was published in Wirtschaftswoche on 13th April 2015.

It is an eerie picture. In a few days or weeks, the Greek government runs out of money to pay its internal bills and external debt service. The threat of default looms larger than ever, but both the Greeks and the Germans remain remarkably calm, though for completely different reasons. The Greeks somehow assume that, eventually, Europe will support them whatever they do. In turn, the Germans somehow assume that a Grexit will not really be such a bad thing.

Alas, both Greeks and Germans are wrong. The Greek error is most obvious. By now, 18 of 19 Eurozone governments are quite convinced that a Grexit would not anymore lead to a massive contagion of other crisis countries. They are right as these countries are dealing with their imbalances, and that is clearly recognized by financial markets. An invisible firewall has emerged around the western Mediterranean plus Ireland, with vast political consequences: the Spanish, the Portuguese and the Irish governments are by now among the loudest voices against special favors to Greece – in view of the hardships that their own populations had to suffer to regain credibility. In short: Greece stands alone. The consequences of this isolation are dire. If the Greek government really ignores the need for Eurozone-conditionality on financial aid, there will simply be a default. This will probably lead to Grexit and to a new currency that very few in Greece want to have. Wages will be massively lowered and paid in (soft) new Drachmas; and savings will be drastically devalued, thus leading to an expropriation through the backdoor. Eventually, ordinary Greek people will come out dramatically impoverished. Continue reading

Politics and microeconomics in the Greek crisis

A slightly edited version of this article was published in the New York Times, on 26th February 2015.

Everyone frames the depression in Greece as an issue of macroeconomics: fiscal policy was tightened too quickly; government debt is too high; the tools of currency devaluation and monetary expansion are not available inside the euro zone. No doubt these are important factors, but they tell less than half the story. Local politics and microeconomic factors are at least as important in explaining the depth of the crisis.

Greece has fared much worse than other euro zone countries, which also faced a ‘sudden stop’ of foreign financing, and then enacted similar austerity programs. It lost 26% of GDP from the pre-crisis peak, while Portugal, Ireland and Spain lost no more than 7% each. Much of this difference is due to foreign trade.

In all four countries, when capital from abroad stopped flowing in, increasing exports became a primary goal, to offset the drop in domestic demand. The other three achieved this quickly, as projected in their adjustment programs. Greece did not. If it had, its recession would have been much shallower; by one estimate, a 25% rise in exports could have limited the drop of GDP to just 3%. Fiscal contraction would have caused much less damage.

This failure of trade adjustment is a puzzle to those economists who tend to view competitiveness in terms of labor cost. Wages did in fact drop by much more in Greece since 2010 than in any other country, and labor cost is no longer a barrier to exports. Firms have not taken advantage of this for three reasons: regulations, fear, and size. Continue reading

The end of hate

International media coverage of SYRIZA has focused on their economic plans, but very little has been written about their divisive rhetoric. This article, by well known political cartoonist Andreas Petroulakis, was published in Greek on the eve of the election. 

While we still can, let us say a few words about the country we are leaving behind — every election takes us to another country. This new country is uncharted, but I hope two things about it: that it be part of Europe, and that it is not so full of hate.

Tomorrow the day belongs to SYRIZA. I think that, regardless of what they have been saying in the past, they will do what they can not to derail our country’s European course. I hope they will succeed in that. I will focus on hate: this party is to a large extent responsible for the volume of hate in Greek society. And I truly hope that as of tomorrow they will try hard to defuse it, and to become a government also of those against whom they had been directing the hate. They should not forget that at least 65% of people still do not trust SYRIZA’s proposition. And let them not say, as I expect they will, that SYRIZA never blamed ordinary people, just governments and the banks — no thanks; their hate fed a rhetoric which spread everywhere. Families and friendships broke up, and people who were neither Ministers nor bankers were publicly slandered and abused. Continue reading

National Populism and Xenophobia in Greece

National Populism and Xenophobia in Greece by Manos Matsaganis and myself forms part of the second phase of Counterpoint’s “Recapturing Europe’s Reluctant Radicals” project. This second phase of the project aims to draw an in-depth picture of how populism emerges in specific country contexts across Europe through ten expert written country pamphlets. 

A number of publications connected to this project are already available, and several more are upcoming. They are, in my mind, exceptionally valuable in gaining insights into the varying national cultures and institutions that have given rise to extremist populism.

This is is the text of the pamphlet on Greece, in A4 format.  

You can also download it in pamphet format from the Counterpoint website.