Thinking about Corruption in Greece1

The chapter addresses the issue of corruption, which appears to be endemic in Greece. It reviews the facts about corruption as a multifaceted phenomenon and its relationship to tax evasion, by comparing Greece to its EU partners as well as internationally. The chapter looks at corruption as an example of anti-social behavior through the prism of modern theories of social interactions and property rights. This offers both bad and good news. Corruption is rampant in Greece, and with a much higher incidence than in other EU countries. One way to deal with it is by means of zero tolerance and relentless vigilance. A second way to deal with corruption is to design institutions that encourage honest behavior and facilitate reporting of abuses. However, an outcome thoroughly permeated by corrupt practices is not the only possible social and economic outcome. Taste for proper social behavior can be taught and learned, and adverse practices discussed in the chapter may be altered by suitable reforms and retraining of public servants.

Education and the Greek Economy1

Education affects the Greek economy in two main ways. Expenditure for education services is a significant part of national income, hence, a better design of the education system directly contributes to overall higher efficiency and welfare. Education also contributes toward building 'human capital', a high level of which is a condition for competitiveness without a need to resort to lower wages. Public spending for education tends to be lower than the EU average, however households tend to privately spend significant amounts, especially due to the high value they assign to university education. Overall, the Greek education system is significantly underachieving its potential and its overall performance is mediocre. Lack of appropriate incentives appears to be the cause for many of the failures, as neither education units nor individuals are seriously evaluated and systematically rewarded for their progress. The State exercises excessive control over the entire system, making it too inflexible, formalistic and averse to change and adaptation to new conditions. Before the crisis, and as long as a relatively high number of graduates could find employment in sectors of the economy not exposed to competition (including the public sector), and as long as the State budget could contribute the funds that kept the system functioning, there were no incentives for reform. Education has been hit hard during the crisis: funding has decreased significantly, the institutions and rules have not improved and many high quality people have migrated abroad. However, as public finances and household savings will remain under pressure for the foreseeable future, the reform of the education system in Greece becomes an urgent priority and an important condition for growth.

Financial Development and the Credit Cycle in Greece1

This chapter reviews the developments in Greece's financial system since the beginning of the crisis. The chapter places them in a broader context by (i) evaluating the long-term performance of Greece's financial system in comparison to other countries, and (ii) reviewing the credit boom-and-bust cycle that Greece has experienced since Euro entry. Risks in the Greek economy remain overly concentrated to those originating them and are not well diversified. By raising the cost of equity capital for firms, this impedes investment. It also drives up corporate leverage, thus making the economy more vulnerable to shocks. These vulnerabilities manifested themselves even before the sovereign crisis hit. Strengthening investor protection, through improvements in the justice system and financial regulation, is an important part of the solution. In the shorter run, the debt overhang problem in the private sector should be addressed. The chapter discusses policy options to achieve these goals.

Product Market Regulation and Competitiveness: Toward a National Competition and Competitiveness Policy for Greece1

This chapter examines the competitiveness of product markets in Greece. One of the main determinants of competitiveness is the quality of the set of rules and regulations that govern the operation of markets. These should promote competition, investment and entrepreneurship. Heavy and low-quality regulation is generally associated with greater inefficiency and poor economic outcomes. This chapter describes competitiveness in the Greek economy and its evolution over time using various internationally comparable indicators that cover many dimensions of competitiveness. It demonstrates that product markets in Greece are among the most heavily and misregulated markets of advanced countries, though the reforms that took place during 2011–2014 had a positive impact. The chapter investigates in greater depth the misregulation of product markets, identifying possible causes and illustrating through case studies. It makes the case for a National Competition and Competitiveness Policy plan to improve the regulatory institutions and reduce regulatory burden. Finally, it looks at the successes and failures of regulatory reform history in two important markets: energy and telecommunications.

The Greek Economy before and during the Crisis—and Policy Options Going Forward

This chapter reviews the performance of the Greek economy before and during the global financial crisis. It also presents policy options for Greece going forward, drawing to a significant extent on the conclusions of subsequent chapters. The chapter first studies Greece's economic performance in the decades before the crisis. It discusses the evolution of gross domestic product (GDP) per capita and productivity, debt, consumption, investment, wages and prices. The chapter then turns to the quality of the institutions pertaining to the business environment (product market regulation, justice system, access to finance, and labor market regulation), and to social protection and public good provision (pensions, welfare system, health care, and education). It also identifies interconnections between institutional quality and macroeconomic outcomes.

The Greek Justice System: Collapse and Reform1

This chapter discusses the key structural deficiencies of the Greek justice system and proposes concrete policy reforms. The first part provides an account of the Greek legal system using cross-country indicators reflecting the formalism, quality, and speed of resolution mechanisms. The analysis shows that the Greek justice civil system has failed to perform its basic tasks. Trials in all types of courts take years to complete, in some instances seven or even ten years. At the same the quality of laws protecting investors, contracts and property, is low. Using comparative data from other EU jurisdictions, the chapter shows that the key reasons behind these failures are the absence of information technology, the lack of support staff, the absence of specialized courts and tribunals, and a hugely dysfunctional administration. At the same time there is minimal assessment of the judges' performance and limited possibilities for continuing professional development. The second part details a set of policy proposals. The proposals consist of immediate measures for clearing the large backlog and a set of ambitious medium-term reforms, many of which require a constitutional amendment. They aim to make the Greek justice system professionally administered, less formalistic, suitably flexible, and more accountable. Given the strong link between legal institutions and development, justice reform should be an absolute priority of the policy agenda, though sadly it is not.

Public Administration and the Tragic Trident: Understanding the Organizational and Structural Drivers of the Greek Malaise1

This chapter proposes reforms to public administration that include making the evaluation and disciplinary processes for civil servants more rigorous and less formalistic, benchmarking the performance of public agencies against key performance indicators that can be monitored publicly, and devolving more powers and accountability to lower levels of the administration. It emphasizes the importance of reforming public administration, as it is the foundation of an inefficient, nepotistic political system built on granting favors and privileges for influence. To that end, this chapter reviews the nature, structure, and evolution of the Greek public administration, as well as some measures showing its relative underperformance. It then analyzes the underlying pathologies and the causes of the underperformance. Finally, the chapter looks at what has been done so far to fix the administration before considering what lies ahead.

Reforming Health Care in Greece: Balancing Fiscal Adjustment with Health Care Needs1

The Greek health care system relies on expensive medical inputs to deliver basic health care services, and is characterized by a lack of primary care focus, which disallows care integration and coordination, particularly in chronic care management. Consequently, care delivery remains fragmented and disjointed and often results in access to care disparities. This chapter proposes three areas where structural reform is essential to address budgetary constraints, improve coverage, and deliver better quality of care. First, the health care financing and contracting model and reimbursement mechanisms need to be overhauled. Transitioning to a funding system through general taxation would be advantageous in increasing levels of coverage over the short- to medium-term, but needs to be accompanied by significant changes in the provision and contracting of services to improve efficiency and quality. Second, the role of primary health care needs to be strengthened so that it becomes the backbone of health service delivery. And, finally, pharmaceutical policy needs fundamental review, including a re-alignment of the different incentives on the supply and the demand side. These reforms require a mix of structural and tactical interventions by decision-makers.

Labor Market Regulation and Reform in Greece1

This chapter describes the regulatory framework in Greece at the time of the crisis and the way it has evolved since. It then reviews the theoretical and empirical literature relating to labor market regulation as a way to understand how the institutions in Greece may have affected the performance of the economy. Finally, it offers an alternative vision of a deregulated labor market supported by a robust system of welfare and social insurance, which achieves better protection and is more conducive to entrepreneurship.

The Challenge of Trade Adjustment in Greece

Greece's trade deficit declined by 10 percent of gross domestic product (GDP) between 2007 and 2012, removing one of the great economic imbalances of the pre-crisis years. However, this reduction was achieved exclusively through import compression while exports fell over that period, thereby worsening the economic crisis. This chapter studies Greece's export underperformance in comparison to Ireland, Portugal and Spain as well as Greece's own pre-crisis experience. The main findings are that (1) given past performance, Greece's exports should have increased by 25 percent, rather than drop by 5 percent between 2007 and 2012; (2) labor markets have adjusted to the new economic environment; (3) product markets did not adjust, hindering the recovery of competitiveness; (4) export underperformance is responsible for a third of the decline in GDP since 2007. The chapter concludes that the business environment and firm size distribution in Greece are also hindering the necessary adjustment.