Goethe University Frankfurt - Faculty of Economics and Business Administration; CEPR; NETSPAR; Goethe University Frankfurt - Institute for Monetary and Financial Stability (IMFS)
Yale University; Yale University - Cowles Foundation; Institute for Fiscal Studies (IFS); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics
London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; Hong Kong University of Science & Technology (HKUST)
Athens University of Economics and Business - Department of Economics; National and Kapodistrian University of Athens - Faculty of Economics; Centre for Economic Policy Research (CEPR)
Athens University of Economics and Business; University of Bologna - School of Economics, Management, and Statistics
Date Written: June 26, 2011
Abstract
Greece is at a decisive moment. It has to choose between defaulting and an economic program of structural reforms, privatization, efficient tax collection, and shrinking of the public sector. Unilateral suspension of debt payments would be an economic catastrophe for Greeks, resulting in deep cuts of civil servants' wages and pensions, bankruptcy for Greek banks, and exclusion of Greece from financial markets. An exit from the Euro would be even more disastrous, since it could lead to hyperinflation and extremely high borrowing costs.
Structural reforms and privatization of state corporations will increase competition and efficiency. Reducing the size and increasing the efficiency of the public sector, efficient and fair tax collection, provision of funds for new investment that will promote growth, and bank capital expansion are necessary ingredients of the solution. Rampant corruption has to be dealt with.
Given the catastrophic effects of a unilateral suspension of debt payments, there is no doubt that Greece has to choose the alternative of reform no matter how difficult. Greece has to implement deep structural reforms now.
Azariadis, Costas and Constantinides, George and Constantatos, Christos and Dellas, Harris and Economides, Nicholas and Haliassos, Michael and Hatzipanayotou (Xatzipanagiotou), Panagiotis (Panos) and Ioannides, Yannis M. and Koulovatianos, Christos and Meghir, Costas and Perrakis, Stylianos and Petrakis, Emmanuel and Pissarides, Christopher and Skreta, Vasiliki and Stengos, Thanasis and Tsoukas, Haridimos and Vayanos, Dimitri and Vettas, Nikolaos and Xepapadeas, Anastasios, Reforms or Bankruptcy? (June 26, 2011). Kathimerini, June 26, 2011, Available at SSRN: https://ssrn.com/abstract=1874294
European Economics: Macroeconomics & Monetary Economics eJournal
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