The Alternative Policy of INE GSEE

for the Greek Economy to Exit the Crisis

Europe at the Crossroads:

A Union of Austerity or Growth Convergence?

Levy Economics Institute

Megaron Athens International Conference Centre,

Athens, Greece

November 21-22, 2014

George Argitis

*Scientific Director of Institute of Labour, GSEE

-1.8

-1.2

-0.6

0.0

0.6

1.2

1.8

2.4

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

hedge

speculative

ponzi

ultra ponzi

Pro

jectio

ns

Figure 1: Solvency Regimes

-1.8

-1.2

-0.6

0.0

0.6

1.2

1.8

2.4

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

SSI

hedge

speculative

ponzi

ultra ponzi

Pro

jectio

ns

Figure 2: The Solvency Index for the

Greek Government Sector

-1.8

-1.2

-0.6

0.0

0.6

1.2

1.8

2.4

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

SSI

hedge

speculative

ponzi

ultra ponzi

Pro

jectio

ns

Figure 3: The Solvency Index

for the Greek Government Sector, 2014-2020

-4

-2

0

2

4

6

8

Pe

rce

nta

ge

(%

)

Baseline growth path

Figure 4: IMF’s Expected Growth Rate

(Baseline Scenario)

-4

-2

0

2

4

6

8

Pe

rce

nta

ge

(%

)

The growth path for Debt sustainability

Baseline growth path

Figure 5: The Growth Rate that Satisfies

the Solvency Condition

-4

-2

0

2

4

6

8

Pe

rce

nta

ge

(%

)

The growth path for Debt sustainability

Baseline growth path

30% decrease in IP

Figure 6: The Target Growth Rate –30%

Fall in Interest Payments

-4

-2

0

2

4

6

8

Pe

rce

nta

ge

(%

)

The growth path for Debt sustainability

Baseline growth path

50% decrease in IP

Figure 7: The Target Growth Rate -50%

Fall in Interest Payments

-1.8

-1.2

-0.6

0.0

0.6

1.2

1.8

2.4

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

SSI30

SSI

hedge

speculative

ponzi

ultra ponzi

Pro

jectio

ns

Figure 8: Solvency Index – 30% Decrease

in Interest Payments

-1.8

-1.2

-0.6

0.0

0.6

1.2

1.8

2.4

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

SSI50

SSI30

SSI

hedge

speculative

ponzi

ultra ponzi

Pro

jectio

ns

Figure 9: Solvency Index – 50% Decrease

in Interest Payments

Figure 10: The Solvency Index

-1.8

-1.2

-0.6

0.0

0.6

1.2

1.8

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

SSI

SSI(100bps)

SSI(200bps)

SSI(300bps)

hedge

speculative

ponzi

ultra ponzi

Pro

jectio

ns

The Policy Proposal of INE-GSEE

An Alternative Approach to Debt Sustainability

that depends on the strategy “sustainable primary

surplus – sustainable public debt”.

An Employment of Last Resort approach to the

sustainability of primary surplus and to the

stimulus of domestic demand

Re-regulation of the Labor Market

-4

-2

0

2

4

6

8

Pe

rce

nta

ge

(%

)

Sustainability growth path

Baseline growth path g of ps 2,5%

g of ps 2%

Figure 11: The Target Growth Rates

Figure 12: IMF’s Baseline Scenario

0

2

4

6

8

10

12

2015* 2016* 2017* 2018* 2019* 2020*

Interest payments Primary Surplus (TROIKA)

Bil

lio

n E

uro

s (€

)

Figure 13: Interest Payments Adjustment to 2,5%

of GDP Primary Surplus

0

2

4

6

8

10

12

2015* 2016* 2017* 2018* 2019* 2020*

Interest payments Adjusted Primary Surplus (Adjusted at 2,5%)

Bil

lio

n E

uro

s (€

)

An overall of 48,6% decrease in Interest Payments would be required

Figure 14: Interest Payments Adjustment

to 2,0 Primary Surplus of GDP

0

2

4

6

8

10

12

2015* 2016* 2017* 2018* 2019* 2020*

Interest payments Adjusted Primary Surplus (Adjusted at 2%)

Bil

lio

n E

uro

s (€

)

An overall of 58,9% decrease in Interest Payments would be required

The Policy Proposal of INE-GSEE

An Alternative Approach to Debt Sustainability

that depends on the strategy “sustainable primary

surplus – sustainable public debt”.

An Employment of Last Resort approach to the

sustainability of primary surplus and to the

stimulus of domestic demand

Re-regulation of the Labor Market

Thanks for your attention