Comparing Two Twenty Year Periods: 1954-73 to 1974-93
Economic Policy, April 1995
A timely article on the Greek economy from … 1995. It compares macroeconomic performance in Greece during two consecutive twenty year periods, 1954-73 and 1974-93, and analyses how institutions and policy regimes affect macroeconomic performance.
The clear change in policy regime in Greece around 1974 offers an opportunity to assess the extent to which economic performance depends on the underlying institutions.
For twenty years up to 1974, Greece enjoyed rapid growth, high investment and low inflation; during the next twenty years, growth and investment collapsed and inflation became high and persistent.
This paper describes the political and institutional background to such a clear change in economic performance, and the nature of the two economic regimes: the first providing coordination and commitment mechanisms to sustain adequate returns for high investment, the second failing to do so. The same change in political climate after 1974 raised public sector deficits and debt, fuelling a trade deficit and monetary expansion.
Entry to the EC did not cause the economic slowdown in Greece, but transfers from the EC did mask the underlying problem, delaying the necessary macroeconomic adjustment.
Attempts to reverse Greece’s fortunes after the early 1990s were made, but they proved inadequate.