Greece's institutional trap

Abstract

The root cause of the Greek Crisis was the institutional deficit, that is, the lack of an efficient institutional framework that is necessary for economic growth. The crisis of 2008 was the triggering effect of the perfect storm that hit Greece. Unfortunately, the austerity enforced by the three bailout programs treated only the symptoms by emphasizing fiscal consolidation. By ignoring the root causes, the bailout agreements underemphasized, in practice, structural reforms. The intuitional deficit in Greece has many aspects: a closed economy, overregulation, low‐quality regulation, selective enforcement, high transaction and administrative costs, judicial inefficiencies, and low levels of social capital.