Monday, April 14, 2014

How Greece Miscalculated

The question then becomes why Greece fared so poorly and how that performance contributed to its recent economic disaster. The most straightforward interpretation of the Greek figures is that it simply failed to integrate effectively with the rest of the European economy. The rest of the periphery was tying itself into EU supply chains, experiencing capital deepening and ungrading technological capabilities, contributing to a rise in underlying growth potential. Greece wasn’t. The southward rush of capital that occurred in the 2000s may therefore have pushed Greece much, much farther beyond potential than was the case in Spain or Portugal. In other words, we see another example of the way in which the Greek government’s profligacy was more symptomatic of the economy’s troubles than a principal cause of them. 

There may be a bright side here for Greece. If a failure to integrate helps explain recent woes, then perhaps that also means that Greece has more capacity to grow rapidly in future as it goes through the integration others enjoyed previously. Assuming, that is, that Greeks themselves remain committed to a club that has yielded them paltry benefits relative to what might have been expected.” 

The original FT article can be found here.

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