Greece and the European Union: An assessment of macroeconomic policies and trade effects

Abstract

This thesis aims to make a contribution to the study of the Greek economy by means of (i) assessing a number of macroeconomic policies adopted by successive Greek governments; (ii) assessing the present effort of Greece to join the EMU; and (iii) evaluating the trade effects caused by EU participation. Chapter 1 provides a detailed account of the main macroeconomic policies adopted by Greece during the period 1960-97. It also describes the Greek institutional environment and reports the movements of the leading economic indicators. Emphasis is placed on the post-1980 period. Chapter 3 attempts an assessment of a number of fiscal, monetary and exchange rate polices adopted by successive Greek governments based on the theoretical background and econometric methodology presented in chapter 2. We conclude that the post-1974 deterioration of the Greek macroeconomic performance is, to a large extent, explained by the fundamental change of the international economic environment and a number of sub-optimal decisions taken by the Greek authorities. We argue that the continuation of the currently applied policy mix, involving a combination of rather lose fiscal and incomes policies and a tight monetary/exchange rate policy, is questionable. Chapter 4 examines the future prospects of Greek macroeconomic policy in the light of the pursuit of EMIU participation. We suggest that if Greece is to achieve EMTU participation in the foreseeable future, it should adopt an economic strategy involving a reduction in public consumption and a number of structural adjustments. We also argue that Greece should not rush to cñn any new ERM-II arrangement without making sure that its participation involves a sustainable exchange rate, i.e. an exchange rate possibly different to the present one. Chapter 5 uses the original data sets presented in the Trade Data Appendix to examine the trade effects caused by the accession of Greece to the EU. It concludes that during the post-integration period the external trade of Greece has been reoriented towards the EU countries and that Greece lost part of her comparative advantage in those sectors in which such an advantage exists. Chapter 6 summarizes and concludes the thesis.