| Hellenic Foundation for European & Foreign Policy

Coping with the Economic Crisis

The current financial crisis originated in the housing mortgage market of the USA, moved to the international financial system and finally reached the real economy. In the round table discussion organized by the Hellenic Foundation of European and Foreign Policy (ELIAMEP) and the Foundation for Economic and Industrial Research (IOBE), on the 9th of February 2009, there was agreement between the speakers in three main points:

a)    there has not been a similar situation in the post-war period
b)    it is difficult to foresee the depth and the expected duration of the crisis
c)    most probably we have not reached yet the worst point in the crisis

According to the estimates made by the International Monetary Fund, the rate of global growth will drop to 0.5% in 2009. This drop is mainly due to a vicious circle of negative interplay between stock markets and real economies, while in emerging economies the diminution of export demand and the drop in direct foreign investments also play an important role.

Microeconomic and macroeconomic policy measures to deal with the crisis

The crisis should be dealt in two separate stages that concern, firstly, the actions taken by the central banks to protect and upgrade the existing liquidity levels and, secondly, the respective governments’ fiscal policies.

The measures that should be adopted to counter the crisis include steps to secure liquidity in financial markets, improvement of banks’ capital structure and the remission from toxic elements in their assets. The latter could be achieved through the formation of a “bad bank” that would relief commercial banks from toxic combined assets and allow the system to recover.

On the macroeconomic scale, measures could include boosting private consumption, relaxing monetary policies by reducing interest rates, increasing public investments on infrastructure and adopting mid-term fiscal programs.

Economic crisis and the EU: the danger of breaking the common market

In the EU the financial crisis coincided with the ten year anniversary from the introduction of the euro, adding to the anniversary the urge for reform to face future challenges.

The crisis affects the EU on two levels
•    The EU as a concrete structure
•    The EU as a group of countries and subregions

Relatively to the first dimension, the existence of the eurozone is recognized as a positive counterweight to the crisis, together with the dynamic initial reaction by the European Central Bank. The actions that followed, however, took place largely outside the Union’s existing institutional framework while any future actions will be a challenge as they demand coordinated and cohesive steps by the member states.

In contrast to the above, however, the danger of fragmentation in the common market is imminent due to the uncoordinated and unilateral measures adopted by member states. In parallel, the existing means of reactions as designed for dealing with the possibility of crises outside the eurozone come short in the case of great differentiations. Today’s crisis threatens to create a gap between old and new member states, as the later are affected disproportionally both by the direct manifestations of the crisis as well as by the consequences of the measures taken inside the eurozone to tackle the crisis. The situation is similar for states in the periphery of the boarders of the EU that in many cases are ‘defacto’ users of the euro.

Greece and the economic crisis: the need for a long term program of structural, fiscal and institutional adaptation.

In Greece, the financial crisis brought in the surface chronic problems of the Greek system that touch both the public and private sectors. Greece’s participation in the eurozone and the relatively introvert character of the Greek economy have reduced up to the moment the consequences of the crises; it is predicted, however, that they will be more severely felt in 2009. The dangers faced by the Greek financial system are mainly related to the quality of the loans that have been provided, including the credit and currency threats in the Balkans. In case of currency devaluations in the Balkans, the assets of the Greek Banks can face the threat of significant diminution.

On the whole, Greece is in need of a meaningful system of reconstruction. Short-term policies, especially in the form of allowances can be adversarial for the Greek economy, undermining its chances of quick recovery. It is of great importance, therefore, for the country to form a long-term program of structural, fiscal and institutional adaptation focused on enhancing competitiveness, supporting the economically weaker and overall restarting the economy with the wider possible social consent. Moving away from financial profiteering, concentrating on the key sectors of growth and determining the balance between private and public sector; including dealing with the phenomenon of party-dominance that constitutes one of the basic factors holding back the Greek economy. Common points of reference between the speakers was the admission that to deal with the crisis structural policies should be coordinated, necessarily, on the international level, and adapt the system to deal more efficiently with possible crises in the future or to avoid them on the whole.


Mr. Dimitris Daskalopoulos, Chairman, SEV Hellenic Federation of Enterprises, Athens
Professor Jean Pisani-Ferry, Director of the think-tank Bruegel, Brussels
Professor Ioannis Stournaras, Scientific Director, Foundation for Economic and Industrial Research (IOBE), Athens
Ms. Miranda Xafa, Member of the Board of Directors, International Monetary Fund, Washington D.C.

Professor Loukas Tsoukalis, President of ELIAMEP, coordinated the discussion.

See Ms. Xafa’s presentation in PDF.

See Professor Stournaras’ presentation in PDF in greek.

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