The Two Faces of Janus: Institutions, Policy Regimes and Macroeconomic Performance in Greece

Abstract

Greece The two faces of Janus: institutions, policy regimes and 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 institutional underpinning. 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. I describe the political background to such clear institutional change, 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 necessary adjustment. Recent attempts to reverse Greece's fortunes are in the right direction but as yet inadequate. — George Alogoskoufis