Wednesday, March 1: Ministry of Finance and Council of Economic Advisers

By Krisjanuardi Aditomo

This afternoon, students studying the Greek economy (both pre- and post-debt crisis) had the opportunity to meet with George Chouliarakis, Alternate Minister of Finance and Chairman of the Council of Economic Advisers. During the 1.5-hour meeting, we learned about the causes of the Greek debt crisis, issues with past consolidation efforts, and opportunities and challenges ahead in managing the crisis. Mr. Chouliarakis opened the meeting with a presentation and then took questions from our group.

The meeting confirmed our research findings about the Greek debt crisis. Weak fiscal institutions were the ultimate cause of the debt crisis--specifically, a combination of poor fiscal discipline, low tax compliance and collection rates, and the high budget and current account deficits. These issues made it difficult for the government to manage its debt and increased the probability of default.

Mr. Chouliarakis provided several reasons why the recovery from the crisis has taken so long. First, he believes the fiscal adjustment targets were too ambitious (they required too much change too quickly) rather than aiming for more gradual, sustainable changes. Second, the government should have introduced greater product market reforms to increase the competitiveness of Greek businesses instead of focusing primarily on labour market reforms to reduce the deficit. Communication failures also played a role; the government did not adequately communicate to the public the necessary short-term pain that fiscal adjustment would inflict in order for the government to achieve long-term stability. This challenge was exacerbated by the fact that the media in Greece is quite politicized.

Mr. Chouliarakis described a number of ways the Greek government plans to turn the current economic rebound into a sustained recovery. First, they will continue to enhance their fiscal credibility by relying on an independent revenue agency. They will also work to regain investor confidence by restoring the Greek banking system and promote product market reforms to encourage business development. They plan to further promote inclusive economic growth by gradually increasing the portion of the budget devoted to the Social Solidarity Income program, which they created in 2016 to provide a social safety net for households living in extreme poverty. Finally, Mr. Chouliarakis emphasized the importance of improving communication with the public in order to help citizens see the benefits of paying taxes and understand the trade-off of enduring short-term reforms to achieve longer-term financial stability.