All posts by Periklis Gogas

Dr. Periklis Gogasis a frequent contributor to The Business Thinker magazine. He is an Assistant Professor of Economic Analysis and international Economics, Department of International Economics and Development, Democritus University of Thrace, Greece

ECB: The Quest for Purity May Lead to Obscurity

Dr. Periklis Gogas is an invited contributor to The Business Thinker magazine. He is Assistant Professor at Democritus University of Thrace, Greece, teaching Macroeconomics, Banking and Finance. Recently, Dr. Gogas was a Visiting Scholar at the Ross School of Business, Uinversity of Michigan.

The European Central Bank, under the influence of Germany was designed with a single mandate: price stability. The function of the Fed in the U.S. is quite different as it is designed to play a significant role in preventing and fighting both recessions and inflation to avoid economic crises. It seems that the U.S. has a long memory regarding crises. The Great Depression and several other less significant in terms of impact crises since then are gone but not forgotten. This is evident in the dual mandate of the Fed that apart from the pursuit of price stability it can also intervene whenever seems necessary with an expansionary monetary policy to provide the liquidity to stir the economy away from danger.

In the European Union things are different. The design of the euro, the monetary union and the EU seems to ignore the history of crises and even recessions. The European Monetary Union’s “Stability and Growth Pact” is a great example. According to this, no member country can run a deficit and debt more than 3% and 60% of its GDP. On top of the fact that this requirement was proven to be hard to enforce, it also makes no distinction between normal economic activity and periods of recessions and even crises. This leaves European governments with no tools for implementing economic policy to avoid or dampen economic downturns as fiscal policy is limited according to the above requirements and monetary policy is in the hands of the European Central Bank where there is no mandate to fight recessions and crises.

Continue reading ECB: The Quest for Purity May Lead to Obscurity

A MODERN GREEK TRAGEDY:The Barber and the Referendum

Dr. Periklis Gogas is an invited contributor to The Business Thinker magazine. He is Assistant Professor at Democritus University of Thrace, Greece, teaching Macroeconomics, Banking and Finance. Recently, Dr. Gogas was a Visiting Scholar at the Ross School of Business, Uinversity of Michigan.

Sophocles, Aeschylus and Euripides after twenty five hundred years finally met their match. Papandreou, Venizelos and other Greek government officials are stunning the world not a bit less successfully than their ancient rivals. Some people used to say that modern Greeks did not live up to the legacy left by their ancestors but the current Greek government is proving them wrong. But let’s take a closer look to the storyline.

The deep fiscal crisis in Greece seemed to be finding a viable solution mid-last week when the long overdue haircut plan was finally put in place in the EU summit. As with the common
haircut at your barber, you cannot avoid the inevitable, you have to get a haircut and the longer it takes you to realize it and do it, the longer the hair is going to be. Hair, like debts do not get shorter by just waiting. The October 27th plan for the haircut on the Greek sovereign debt was desperately needed not only by Greece but for the euro and the financial markets as well. It was clear to everyone that despite the aid by the EU and the IMF, Greek debt was not sustainable and it was heading towards an uncontrolled default. In private business financing the picture is clearer and these situations are dealt with swiftly and usually successfully: the borrower and the lender come to an agreement so that the former is able to service part of its obligations and the later ensures minimized loses. The decision reached at the dawn of October 27th is a step towards the right direction for two reasons: Greece and the international community will avoid an uncontrolled default and

Continue reading A MODERN GREEK TRAGEDY:The Barber and the Referendum

Greece and the U.S.: The Importance of Monetary Policy Independence

Dr. Periklis Gogas is an invited contributor to The Business Thinker magazine. He is Assistant Professor at Democritus University of Thrace, Greece, teaching Macroeconomics, Banking and Finance

As a result of huge government deficits in 2009 Greece was faced with successive downgrading by all three major credit rating agencies that rendered its government securities to “junk bonds” status. This severely impacted Greece’s creditworthiness and it was forced to use a joint European Commission, European Central Bank and IMF rescue deal as Greek government bonds were plummeting and yields skyrocketed. This rescue package came with very strong “strings attached” as the package required a series of important austerity measures to curb government spending. These austerity measures led since then to a severe recession that Greece has yet to overcome.

Last week, Standard & Poor’s announced the downgrade of the U.S. economy for the first time in history from AAA to AA+ after the enactment of the Budget Control Act of 2011. Of course the severity of the fiscal problems of Greece and the U.S. are far from similar. Greece’s public debt amounts to 140% of its GDP while this number is only 70% for the U.S. But this is not the only difference between the two countries. What is most important is who is responsible for the conduct of economic policy: fiscal and monetary policy. Greece within this crisis is not in the position to conduct any of the two. Fiscal policy is virtually nonexistent as it is controlled by the bailout package and monetary policy is conducted by the European Central Bank since the country is a member of the Eurozone.

Continue reading Greece and the U.S.: The Importance of Monetary Policy Independence

THE EURO: A GOLDEN TRAP FOR GREECE

Dr. Periklis Gogas is an invited contributor to The Business Thinker magazine. He is Assistant Professor at Democritus University of Thrace, Greece, teaching Macroeconomics, Banking and Finance

The adoption of the euro as the common currency for the participating EU countries was hailed by politicians, academics and business people as a very important step-forward towards the ideal of European economic integration through the implementation of Robert A. Mundell’s Optimum Currency Area theory. The new currency was a greater success than many economists expected. Outside the EU it has become the second -after the dollar- reserve currency for many central banks and close to thirty nations worldwide chose to peg their currencies to the euro. The new currency helped to eliminate exchange rate risk and minimize transaction costs within the Eurozone, boosting intra-EU trade and efficient capital allocation.

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The Proposed E.U. “Competitiveness Pact”

Dr. Periklis Gogas is an invited contributor to The Business Thinker magazine. He is Assistant Professor at Democritus University of Thrace, Greece, teaching Macroeconomics, Banking and Finance

The recent public debt crises in Greece and Ireland have put forward the issue of sustainable public debt in many of the developed industrialized countries. This crisis, like the mortgage crisis of 2008 and many other crises, stems from the extensive low cost flow of credit in recent years. Debt growth seemed harmless and innocent enough in an era of optimism, rising assets’ valuations and seemingly robust economic development. Unfortunately, for different inherent reasons, these debt bubbles started to burst for Greece and Ireland and the future looks gleam for many other heavily indebted countries in Europe, North America and Asia. The European Union, acting rather sluggishly, has, finally, put in place the European Financial Stability Facility (EFSF), a mechanism for dealing with bailouts of heavily indebted EU countries that are a threat to the economic stability of the Union and the Euro. As it is common for economic policy in the European Union, member states and the corresponding institutions that are responsible for designing it, act in panic or on undisclosed agendas. The last example is the proposed by France and Germany “competitiveness pact” that includes, among many others, increasing retirement age limits even for the countries that face no pension fund problems, setting minimum corporate tax rates across-the-board within member countries and applying constitutional provisions in all member states for implementing balanced budgets. These arrangements in the “competitiveness pact” may be problematic for two reasons: Continue reading The Proposed E.U. “Competitiveness Pact”

THE FAILURE OF THE PRIVATE SECTOR IN GREECE

Dr. Periklis Gogas is an invited contributor to The Business Thinker magazine. He is a faculty member at Democritus University of Thrace, Greece, teaching Macroeconomics, Banking and Finance

For many years now in Greece, even before the recent fiscal crisis, the public sector and the government employees were targeted by Greek national media and the public as the source of many problems that clouded the country’s future. At the center of the debate there is always the myth of the “high” salaries paid in the public sector, the constitutional provision for the permanence of public servants and their alleged low productivity.  At the same time, many young people in Greece have as a career objective to work for the public sector. Continue reading THE FAILURE OF THE PRIVATE SECTOR IN GREECE

The Making of The Greek Fiscal Crisis

Dr. Periklis Gogas is an invited contributor to The Business Thinker magazine. He is a faculty member at Democritus University of Thrace, Greece, teaching Macroeconomics, Banking and Finance

The public debate over Greek debt is in the headlines for months now ever since the first issues with regard to Greece’s fiscal problems were raised. Political and ideological confrontations on the subject are inevitable. Accusations over culpability are an everyday occurrence between members of the two major political parties PASOK and ND that ruled Greece by turns since democracy was restored in 1974. Academic economists in Greece follow these developments closely and they are often at the epicenter of heated discussions in the media with journalists and tax payers indirectly or directly accusing them for the current situation. People are wondering why all the economists that now stress the shortcomings of Greece’s fiscal policy remained silent or at least they did not criticize that strong the same policies in the past. The truth of course is that no politician ever asked them and no one ever listened to their warnings. Politicians were busy accusing each other for creating the debt. Thankfully, numbers can tell the truth impartially without subjective political judgments and deception: a simple graph like the one in Figure 1 depicts the truth. Continue reading The Making of The Greek Fiscal Crisis