Nov 21

In my previous post (, through my discussions with experts and policy makers engaged with the Adjustment Programme for Greece, I had tried to name according to my understanding the conditions and those concrete steps, which will lead the Greek economy and society to the next phase, the one of sustainable growth, after reaching the necessary public fiscal consolidation level. Though the latter still looks pretty much fragile, because of the means which is being achieved through, we have considered the following in order to boost growth. I wish that each one of us could assign an implementation (achievement) probability to these measures.

  1. Further improvements are needed to the business environment and to increase competition, in order to reverse the low level of private investment – currently only at 11% of GDP;
  2. new investment in logistics, energy and tourism must be stimulated, through opening markets, favorable regulation and by mobilizing privatization assets, especially land – these are all areas in which Greece has important competitive advantages;
  3. growth policies must be safeguarded by robust public finances, with a view to improving public spending effectiveness and lowering nominal tax and social security rates, while increasing revenue collection rates;
  4. the long-term unemployed need to be quickly integrated into the workforce, through active labour market policies and the availability of vocational education and training;
  5. progress on NPL resolution is needed, in order to open the door to improved access to finance and risk capital;
  6. Action plans must be validated for key industries such as ICT, pharmaceuticals and agro-food, to stimulate growth and investment, and in particular, a rapid catch up of Greece in IT, including broadband investment and creation of a digital market;
  7. and finally, there is a need to improve the capacity of the public sector and the judicial system to support growth; structural reforms must be supported by extensive reforms in the public sector, most notably in its governance and administration, the social support system, setting clear demarcation rules for the latter between social security, social welfare and health and strengthening the funded character of social security through bold regulation (e.g. setting up an effective second pillar).

For all measures up to number 4, one should almost exclusively count on the capacity of the public sector to deliver or, more specifically, on the implementation record of the measures under number 7! Then, perhaps, those actions under numbers 5 and 6 may look more mature to be progressed, as long as (again) the public policy makers adopt a much less than usual practice to over-regulate.

If one considers the implementation odds with the last named measures (structural reforms with the public sector), not any serious analyst could assign a probability more than around 40% for a decent progress in the next 12-month period (crucial time interval!). Now, let us think about those other measures, the implementation of which depend on the critical ones (no 1-4).

Basic Bayesian statistics say that, in this case, the implementation odds of these dependent measures can be calculated as the product of the two probabilities, the one of the afore-mentioned critical measures to be achieved (40%) and of the other of the dependent actions, estimated on the hypothesis that the pre-conditions had been reached (critical measures achieved!). Thus, with the best-case scenario, when assigning probabilities of the level of 90% for the dependent actions to be well progressed, it seems that the calculated implementation odds of these specific actions (no 1-4) are lower even than 40%!

On this basis, some analysts, already “smell” a doomed case with the evolutions in Greece, and desperately look for – much anticipated – evident progress with the reforms. As they do understand the risk of the deadlock (low probability of progress with the reforms, thus of boosting the economy), even in the case when Greece gets a (marginal) re-profiling of its debt and be included in the ECB’ s QE programme.

Nevertheless, it is difficult to see how this (last) appeal to fast-track reforms could prove effective. Unless those specific steps (proposed in previous post) are deployed, either one or both and in synergy. That is, either to move on with a change towards a multi-partisan governance scheme, which will not be counting on the opinion of the core electoral clientele (public bodies’ employees and civil servants), and thus claim the capacity to deliver the public sector reforms. Or to significantly increase the status and the capacity of the technical assistance, offered to both the authorities and the institutions, in order to immediately kick-off and enhance the monitoring procedures as well as the impact assessment of the reforms needed.

I do hope that both of these might happen in the next six months, otherwise there is not any chance for the return to growth in the next years – even if this is the scenario adopted and agreed upon with the updated Programme (to be validated during the current evaluation round).


Nikitas Kastis, 21 Nov 2016


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