The origin and the future of the Greek crisis              An article devoted to Professor Yiannis Ioannides

The Greek crisis is much more complicated than solving the debt problem. Greece's supply problems have been lurking for decades, and were present in Greece even before Greece acquired a European Union membership. This because the nature of the crisis is not only due to hastening changes of the market forces, but also due to the continuous institutional reforms that hampered development in the years 1970-2017. The continuous labor reforms of the latest years have contributed to the collapse of the demand. The fiscal contraction, a policy that did not abide to the ongoing attempts to endorse the domestic supply, further cultivated the unequilibrium that prevailed in the market. However, the efforts to increase the domestic supply proved absolutely ineffective. Greece, seems to be another example of downright obstructionism.

Greece's contracting demand was driven by a prolongedly desired fiscal austerity. The economic program, aimed at providing Greece a strong, independent core, in order to allow herself to live within its own means and return to capital markets. Although the Troika loans (240 billion Euros) and the decreased transfer payments program helped Greece to increase the government budget, a motive for economic competitiveness, the program did not fully restored prices and growth rate.

The domestic market prices did not fall. The decrease in the aggregate demand brought about by wage decreases translated into a contraction of aggegate activity and unemployment. The wage reduction plan was probably the largest wound in Greece's private suppliers. The phenomenal increase in the profit margins was a result of the decreased wages, rather than a decrease in prices of raw materials.

The capital controls and the referendum of the New Program generated paramount mismanagement and political instability. The debt, overhaning, affected, and still affects perceived wealth and hence demand. The supply, aimed to remain competitive, is an aim that forges the governmental attempt to maintain a sustained improvement in TFP growth.

One can conclude, that the economic crisis prevailing in Greece is not only a problem that stems from the weakness of the market. It is a rather fraudulent issue, an ongoing problem due to the missaligned decisions of the government; decisions which counter the incentives and overpass the capabilities of the economy. The only way for Greece to go forward is a broad coalition of Greek parties meaning to reform. Will the electoral campaign at last focus on the need of properly advised reforms? The future of the Greek crisis, it seems, depends on governmental focus.