ΤΜΗΜΑ ΟΙΚΟΝΟΜΙΚΩΝ ΕΠΙΣΤΗΜΩΝ
ΜΑΘΗΜΑ: ΑΓΓΛΙΚΑ ΓΙΑ ΟΙΚΟΝΟΜΟΛΟΓΟΥΣ IV
ΕΞΑΜΗΝΟ: Δ
ΔΙΔΑΣΚΩΝ: ΤΣΕΛΙΓΚΑ ΘΕΟΔΩΡΑ
GREEK/WORLD ECONOMIC CRISIS AND PUBLIC SECTOR
1) ILIANA DIAMANTI A.M. 2375
2) CHRISTINA KAKOULAKI A.M. 2400
3) XRISANTHI VASILIADHI A.M. 2565
4) STAVROS PRASSOS A.M. 2566
Contents
1) INTRODUCTION
2) THE SITUATION IN GREECE
3) SECTORS THAT HAVE BEEN AFFECTED BY GREEK CRISIS
4) PRODUCTIVITY IN THE PUBLIC SECTOR
5) CORRUPTION
6) TAX EVASION
7) CONCLUSION
1) INTRODUCTION
Economists try to collect, analyze and estimate different economic
conditions. Study the economy itself and how it behaves under certain
political or economic actions. Also economists study the whole and each
parameter of economy and try to see and estimate how those parameters
combine each other or affect each other and the economy itself. A very
big issue since 2006 is the worldwide financial crisis and especially the
Greek crisis that affects the whole economy and many sectors of it.
2) THE SITUATION IN GREECE
Many analysts have analyzed the Greek economic crisis. Many analyzes
have identified as the main factors of the crisis the huge debt, high budget
deficits, the irresponsible management of public expenditure, the long lag
exports against imports, low competitiveness and the dysfuctioning of the
labor market. According to Gregory T. Papanikos (2012) economic crisis
started in United States of America in 2007 and in year 2009 hit Greece
very hard so Greece was put under troika’s supervision. The crisis has
created enormous problems in the country and the word bankruptcy
sounds daily. Some people do not even want to think of it, some other
believe that this is the solution. However, bankruptcy can be prevented
and Greece can return to growth only with significant economic reforms.
Social consensus plays an important role for the success of these reforms.
Nevertheless the consensus is absent. Let’s see the progress of the
economic crisis in Greece more specifically:
The debt was increased rapidly during the 1980s and continued to
increase slower during the decades of 1990 and 2009 (Costas Meghir,
Dimitri Vayanos,Nikos Vettas).
Table 1: Government debt (Source: OECD)
Year
1980
1990
2000
2009
Gov. debt as %
26
71
101,5
115,1
of GDP
Debt caused a reduction in productive investment and in consumption
growth. Greek citizens were consuming beyond their capabilities. To get
out of this economic crisis Greece decided in cooperation with the
European Union to take the first bailout loan package. On 1st May of
2010 the Greek government with prime minister George Papandreou
decided to sign on a large EU/IMF loan package accompanied by its
austerity measures. The European Union in cooperation with
International Monetary Foundation concluded in a 3-year package which
volume was 110 billion euro but also accompanied by a high interest rate
of 5,5%. This package was known as the 1st memorandum. This austerity
package was met with a great anger by the Greek public.
Also the effects of memorandum were not those that were expected to be.
The revisions of 2009 have shown that deficits and debt levels were
increased, by making 2010 target more difficult to get reached than it was
expected. While in 2011 the severe economic crisis decreased again the
tax revenues by making impossible now, for Greece to meet its fiscal
goals.
These led EU/IMF to recreate a 2nd bailout loan package, in July of 2011.
This package was known as the 2nd memorandum and has a volume of
100billion euro with an extended repayment period from 7 to 15 years
and a decreased interest rate at 3,5%. This package was also accompanied
again by austerity measures which were focused again in the size of
public sector. These made the great crisis more severe (wikipedia).
3) SECTORS THAT HAVE BEEN AFFECTED BY GREEK CRISIS
The crisis in the public sector affects indirectly many sectors of
community, many financial sectors and even human behavior.
The unemployment, inflation, private sector, GDP and tourism are the
most affected financial data in the country. When crisis made its
appearance there were plenty of problems that come up, on the surface
and affected immediately the public sector. Electoral interests made
public sector’s labor too large and the sector couldn’t work properly. So
public sector needs to be transformed to an engine of growth and an
efficient provider of services to Greek economy and society.
The public sector transformation is one of the most important reforms
that Greek government should be focused on. The public sector should be
transformed from an institution of hiring party supporters to a new one,
that will work only productive and efficient employees, where their
productivity will be rewarded. Only those employees, will create a new
public sector that will provide a good level of services.
4) PRODUCTIVITY IN THE PUBLIC SECTOR
The Greek government should transform the old unproductive public
sector, to a new efficient provider of services. This transformation is not
easy to become true because of the need for spending cuts. The repeated
wage cuts and the massive dismissals discouraged more the civil servants.
The feeling of desperation led them to strikes something that makes the
public sector more dysfuctional than it was. The best solution in this case
is the financial rewarding. The rewarding should be in relation with the
quantity and quality of their output using as benchmarks relevant
international indices. In the following table we see the productivity of
public educational system in Greece and the average in the European
Union,measured by an international organization (PISA).
Table 2.
PISA
score
PISA score
PISA
score
mathematics
reading
Number of
Graduation
universities rates
science
Greece 460
459
473
2
29,8
492
498
500
4
48.1
EU27
or
OECD
avg.
But how can we reach this evaluation of the Greek public sector? The
answer relay on the following principles:
The 1st is that Greece should be adjusted to foreign practices promoting
meritocracy and trust.
The 2nd one promotes the alignment of the evaluators and of those who
will be evaluated, interests.
Analysts believe that the public sector in Greece is large enough and
consumes a huge amount of recourses. The total wage bill in the Greek
public sector is actually higher than the European average. For example
in 2007 Greece spent the 11,2% of GDP (Gross Domestic Product) for
the payments of civil servants while the european average was 10,4% of
GDP. However this difference is not significant when it is placed in a
wider context. For example, Sweden spent the 15% of GDP for the
payments of civil servants. So as we mentioned above the solution to the
problems that Greek crisis has created is to make reforms ( Michael
Haliassos Dimitri Vayanos).
5) CORRUPTION
An important problem which nowadays is a widespread phenomenon in
Greece is corruption and this is a widespread problem because there are
no incentives to discourage it. To give a final solution, government
should be focused on reforms such as: creating tougher penalties against
corruption, modernize the old one accounting practices and also the
relationship between government and citizens should be simplified and be
more anonymous. However, some believe that in case of corruption any
effort for reforms will eventually have poor result and this happens
because corruption in Greece works from bottom (public servants) and up
(political personnel) and vice versa. The only way for changing the
situation is by changing social behavior which means that public should
be educated and especially young generation. This will also help to save
other unsocial behaviors such as tax evasion.
6) TAX EVASION
Fighting tax evasion should be a top priority for the government. Indeed
if the government had been able to collect taxes from all citizens
according to their actual incomes, deficits would have been much smaller
and Greece would not have a debt problem today. Also in this case, again
we come across with the unproductiveness of public sector and the
incapability of tax offices to distribute fairly the volume of the taxes.
Many governments practice different taxation systems. Usually the
citizens ask for a progressive taxation system where the total amount of
payments is analog with their annual revenue. But an economic theory
against them, supports the proportional taxation system that keeps a
stable level of payments (ex 10%) and says that this is an amount that all
are willing to pay for. In this way we have no tax evasion. Greece
practices the progressive taxation system and in table 5 we see how
direct and indirect taxes are distributed.
Table 3: Government revenue (Source: Eurostat)
Total revenue
Indirect
Direct taxes
Social
as % of GDP
taxes
as % of GDP
contributions
as % of GDP
(VAT) as %
of GDP
Greece
39,7
12.5
7,9
13,4
EU27
AVG
44.9
13,5
13,4
13.5
7 ) CONCLUSION
Finally, it worths mentioning that the economic crisis over the
negative effects on the economy and society, it is also an
opportunity for social change. It is a challenge for the degradation
of a rotten attitude and behavior and the emergence of a healthy
collective consciousness that will help us to go forward.
Learning from past mistakes, we can proceed in the formation of
other cultures which will help us in creating a better society.
REFERENCES:
Gregory T. Papanikos Athens, 17 March 2012
http://www.atiner.gr/gtp/P2012-01Crisis.pdf
Michael Haliassos and Dimitri Vayanos(Goethe University
Frankfurt and CFS; London School of Economics)
http://greekeconomistsforreform.com/wpcontent/uploads/Getting-Greece-back-on-Track-HowEnglish.pdf
Costas Meghir (Yale University,University College London
and IFS)
Dimitri Vayanos (London School of Economics CEPR and
NBER )
NikosVettas (Athens University of Economics and Business)
5 August 2010
http://greekeconomistsforreform.com/wpcontent/uploads/Reform.pdf
http://en.wikipedia.org/wiki/Greek_government_debt_crisis