Greece needs neither wage deflation nor more fiscal austerity; what is needed is an emphasis on structural reforms to boost (non-price) competitiveness
Greece needs neither wage deflation nor more fiscal austerity; what is needed is an emphasis on structural reforms to boost (non-price) competitiveness
Greece Focus Notes
12 Μαρτίου 2015
This note looks beyond the present state of negotiations with official creditors in the context of the four month extension of Greece’s Master Financial Assistance Facility Agreement (MFFA) that was decided at February 20th Eurogroup.. It even looks beyond the pending completion of the program review to argue that the emphasis of any succeeding arrangement between the Eurogroup, the institutions and Greece should aim to boost the medium-term growth prospects of the domestic economy. This would in turn require a strong emphasis on structural reforms to boost the non-price competitiveness of the Greek economy so as to facilitate the needed transition to a new development model emphasizing increased investment and extroversion. On the other hand, the absence of structural reforms along with a renewed focus on draconian fiscal austerity and wage deflation would increase the chances of a self-defeating fiscal adjustment with severe consequences for fiscal sustainability...