1. Temple University Center of Hellenic Studies

2. Understanding the Greek Economic Crisis Keynote Speaker Dr. George Tsetsekos, Dean LeBow College of Business – Drexel University Prof. Kyriakos Kontopoulos, Sociology, Temple University Evangelos Delikouras, Partner, AFP Panagiotis Tsaoussis, Sr. Vice President, ING Christina Morrison, Sr. Vice President, Merck Elena Panaritis, Economist, Member of Greek Parliament ( via teleconferencing ) Saturday April 24, 2010 at 2 pm Michell Pavilion at St George, Media Organized by Temple University Center for Hellenic Studies Aristotle Academy at St George Media

3. Outline I.The Problem and its Solutions - (GT) II.Pre-existing Conditions / Background - (KK) III.Creation of the “Fiscal Crisis of the State” - (PT) IV.What Is To Be Done I.Macroeconomic (PT) II.Institutional (EP) III.Business (CM/ED) V.Can these Be Done by Greeks? (All)

4. What is the Problem? The size of – Public debt – Government deficit – Current account deficit – Trade deficit – Needed Liquidity

5. Debt Issuance Requirements Hellenic Republic 2010-2013 YearDeficit (€B) Target Deficit/GDP Refinancing needs (€B) Total Debt (€B) 2010€218.7%€33€54 2011€135.3%€44€58 2012€72.8%€42€50 2013€62.0%€34€40 Source: Bloomberg, 2010 Stabilization & Growth Program

6. Deficit & Total Debt

7. What is the Problem? 200620072008200920102011201220132014 GDP210226239237 Gov Deficit -7 -11 -16 -32 -21 -13 -7 -6 (% GDP)-3%-5%-7%-14% Gov Exp43454750 Gov Rev39 36 Gov Debt205216237273 (% GDP)979599115

8. The Solutions A.Leave the Euro-zone B.Default C.Bailout through EU (mainly Germany) D.Debt guaranteeing for harsh fiscal austerity E.Grow out of debt

9. Option 1 – Leave the Euro-zone Pros – Strengthen exports by devaluing the currency – Invest in competitive sectors Cons – Conversion expenses – Reputational costs – Impact on other EU countries

10. Option 2 – Default Pros – Negotiate a workout with institutional investors – Avoid huge tax burden on middle class Cons – Cut out of capital markets – Banking asset crisis – Capital flight

11. Option 3 – Bailout through EU Mainly Germany and/or IMF Pros – Reduced interest rates – Avoid immediate state default Cons – Dependence on externally imposed fiscal program

12. Option 4 –Debt guaranteeing for harsh fiscal austerity Pros – Continuity – Maintain access to the financial markets Cons – Expensive – Requires agreement of all parties

13. II. Background/ Pre-existing Conditions 1.The historical “dysfunctions” of the Greek State and its contemporary “Malformed Capitalism” [Δύσμορφος Καπιταλισμός] 2.Post-War Unemployment and Greek ‘Statism.’ 3.Rapid Modernization but Lagging Development. 4.Party bipolarity and Political Clientelism.

14. The Historical ‘Dysfunctions’ of the Greek State A Preemie State, minimal, inorganic, dependent on England Piecemeal Liberation and Onerous Loans for Wars Poverty and Clientelism Shift of Reliance from Civil to Political Patronage [Parties of Notables] Contemporary “Deformed Capitalism” Form.

15. Post-War Unemployment and Greek ‘Statism’. Depression, Foreign Occupation, and Civil War Unlimited Supply of Labor but Limited Industrialization: Emigration Primary City Dominance: All Roads Lead to Athens The State as the Employer of Last Resort

16. Rapid Modernization but Limited Development [since the 1960s] Lavoro Nero, Ploutismos, and Consumerism Corruption Everywhere: Penia Technas Katergazetai “Deformed [Lemon] Capitalism” But We Are Europeans…

17. Party Bipolarity and Political Clientelism in the Post-Junta Era Two-Party System in an Institutional Vacuum [No ‘Loyal Opposition’] The ‘Governing Coalition’ Switch and Societal Demands Vertical Integration of Parties and Over- politicization of Decisions Thus, Greece became a Poor Country with Rich or Richly Living Greeks.

18. III. Creation of “Fiscal Crisis of the State” 5. National Debt and Budget Deficits at Current Impasse with public sector driving the debt 6. Current financial situation in Euro-zone Periphery 7. Wake up call for Euro 8. How much corruption really costs? 9. Global “Great Recession” as tsunami on Greek economy

19. Public sector drives total debt

21. A wake up call for the Euro

22. How much corruption really costs?

23. The 4-4-2 system According to a senior government official some tax offices operate a "4-4-2 system," a reference to soccer tactics. If an individual or firm owes €10,000 in taxes, – they slip €4,000 to the inspector, – keep €4,000, – and pay €2,000 to the state.

24. IV. What Is To Be Done: Macroeconomic – Normal market ‘solutions’ will not work – Help from EU & IMF Institutional Business

25. The Role of IMF Promotion of global economic cooperation & stability 186 country members Policy advice to governments and central banks Technical assistance & training on economic matters Research, statistics, analysis Loans for economic difficulties and impoverished countries

26. IV. What Is To Be Done: -1 9. Macroeconomic adjustments [IMF-like] (for lower borrowing costs) – Ασφαλιστικό / Social Security – Φορολογικό / Taxation – Μισθολογικό [controls] / Compensation – Abolition of Ineffective Programs – Opening of ‘close shop’ professions

27. IV. What Is To Be Done: -2 10. Institutional Reforms: Establish fair and transparent Rules of the Game through: – Checks and Balances (predictable processes – low transactions costs – real dead lines [e.g. Election Dates]) – Politically “Neutral” Institutions Budget Office [Γενικό Λογιστήριο του Κράτους] Statistical Service of Greece IRS Judiciary (courts) Independent and Autonomous “Council of Economic Advisors” – Open Feedback Action Taking Mechanism of all public services from users e.g. citizens

28. IV. What Is To Be Done: -3 11. Developmental Plans to decrease ‘Statism’ – Privatization of State-controlled corporations – Decentralization of the State: [Αποκέντρωση]. [Kallikrates?] – Free market in higher education (certificates, degrees, MAs) based on international accreditation reviews – Post-industrial turn for educated youth [college-based incubators] – Funding incubators for Small Businesses – Regionalism for developmental projects [EU funds absorption] – Regional Training for Balkan and Arab countries ‘openings’ consulting and export support for small companies

29. From Ottoman System to European State ? (1821-2010) From Crisis of 2010 (2010-….) To Antigrafi Polythesia EDUCATIONLearn Guide EpidotisiBUSINESSCompetitive LadomaGOVERNMENTRules Diorismos Autheraito SOCIETYUseful Planned

30. Argentina or Brazil?

31. Conclusions This the biggest post war crisis for Greece leading to prolonged recession to fix its troubled public finances and systems Historical opportunity for Greece to finally become a modern western european state The challenge remains if Greek society can take the needed harsh structural reforms

32. IV. Can these Be Done by Greeks? By Greece alone? Within the Eurozone framework? Panelists responses and open discussion.