Greece from exit to recovery

& $ & & ( : $ 3& 5 * & 7& '3 5IFPEPSF1FMBHJEJT JDIBFM.JUTPQPVMPT GREECE From Exit to Recovery? 00-2577-0 fm.indd 4/30/14 1:48 PM 00-2577-0 fm.indd 4/30/14 1:48 PM GREECE From Exit to Recovery? Theodore Pelagidis Michael Mitsopoulos brookings institution press Washington, D.C 00-2577-0 fm.indd 4/30/14 1:48 PM Copyright © 2014 the brookings institution 1775 Massachusetts Avenue, N.W., Washington, D.C 20036 www.brookings.edu All rights reserved No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Brookings Institution Press The Brookings Institution is a private nonprofit organization devoted to research, education, and publication on important issues of domestic and foreign policy Its principal purpose is to bring the highest quality independent research and analysis to bear on current and emerging policy problems I nterpretations or conclusions in Brookings publications should be understood to be solely those of the authors Library of Congress Cataloging-in-Publication data is available ISBN-978-0-8157-2577-0 987654321 Printed on acid-free paper Typeset in Sabon Composition by Cynthia Stock Silver Spring, Maryland 00-2577-0 fm.indd 4/30/14 1:48 PM For Mark (t.p.) and for Veronica (m.m.) 00-2577-0 fm.indd 4/30/14 1:48 PM 00-2577-0 fm.indd 4/30/14 1:48 PM Contents Foreword Kemal Dervis¸ ix Acknowledgments xv List of Abbreviations xvii Introduction 1 From La Dolce Vita to Collapse: The Sins of the 1990s and 2000s That Led Greece into Free Fall The Depression of the Century: Prejudice and Misguided Policies Unlocking Growth: Innovation as a Driver of Competitiveness and Prosperity 85 41 Appendixes A Cases of Corruption in the Greek Government, 2008–12 127 129 B Data and Statistical Analysis Notes 139 References 147 157 Index vii 00-2577-0 fm.indd 5/8/14 3:18 PM 00-2577-0 fm.indd 4/30/14 1:48 PM Foreword Sipping a lemonade on a perfect summer evening, near the Acropolis in Athens in 2005, I was thinking about how beautiful and lucky a country Greece was Greece’s growth performance over the post–World War II period had been one of the best in the world, and per capita income had reached US$21,700 at market prices in 2005, making it a high-income country More recently, the ratio of Greek to German per capita income had gone from 52 percent in 1995 to 64 percent by 2005 Greece had become a full member of the European Union and of the euro zone The terrible period of right-wing military dictatorship and violence in the late 1960s and early 1970s was long gone, and democracy was functioning, in a somewhat populist and chaotic but perfectly peaceful way There were no internal ethnic or regional conflicts, so prevalent elsewhere in the Mediterranean and Balkan regions Thanks to the work of George Papandreou and Ismail Cem when they had been foreign ministers of Greece and Turkey, respectively, relations between the two neighbors had greatly improved, particularly since a special Greek rescue team was dispatched to Turkey by Greece immediately after a devastating earthquake in Turkey in 1999 It is amazing what such a gesture—and it saved Turkish lives—can to promote peace and goodwill Turkey reciprocated at the time of a smaller earthquake in Greece, some months later Tensions in the neighborhood had decreased Greece was an influential member of the European Union and of NATO and, at the same time, had good relations with Russia, the Arab world, and Israel, as well as countries further afield The adoption of the euro had gone well, growth had accelerated further, sovereign interest ix 00-2577-0 fm.indd 4/30/14 1:48 PM .. .GREECE From Exit to Recovery? 00-2577-0 fm.indd 4/30/14 1:48 PM 00-2577-0 fm.indd 4/30/14 1:48 PM GREECE From Exit to Recovery? Theodore Pelagidis Michael... tax VIF vector inflation factor UN United Nations WEF World Economic Forum WGI World Governance Indicators 00-2577-0 fm.indd 18 4/30/14 1:48 PM GREECE From Exit to Recovery? 00-2577-0 fm.indd... problems now facing Greece and Europe appear to arise less from the conditions of the Greek economy at the time of its accession to the euro area and more from an inability to deal with the problems