The Greek saga: competing explanations of the Greek crisis - A

Marxist alternative

Stavros D. MavroudeasDept. of Economics

University of Macedoniae-mail: smavro@uom.gr

 &

Dimitris PaitaridisDept. of Public Administration

Panteion Universitye-mail: paitird@yahoo.com

Structure of the paper & Main Arguments

The paper reviews the alternative explanations for the Greek crisis: 3 broad distinctive currents of explanations:(1)Mainstream (neo-classical or neo-Keynesian)(2)Radical (post-Keynesian and Radical Pol.

Economy)(3)Marxist

MAINSTREAM: 3 versions:(a)a special Greek historical accident (Greek

‘disease’)(b)the Greek ‘disease’ exacerbated by EMU’s

unrectifiable structural deficiencies (not an OCA)

(c)a ‘middle-of-the-road’ blend: the Greek disease and EMU’s deficiencies are rectifiable.

This current attributes the problem to either policy errors or ‘weak’ structural causes (national and/or financial).

RADICAL (‘financialization thesis’): 2 versions: (a)‘financialization’ in the context of the North –

South divide (imbalances that caused the Greek crisis stem from the EMU).

(b)‘financialization’ in the national context; the North - South divide is an erroneous dependency argument.

Both versions have a weak structural emphasis (not considering the problems in the sphere of production).

MARXIST: a strong structural explanation (Greek crisis grounded in the sphere of production). Two structural components: (a) ‘internal’: the 2007-8 economic crisis a a-la-Marx crisis (tendency of the profit rate to fall), (b) ‘external’: imperialist exploitation (i.e. unequal exchange) within the EU.

MAINSTREAM EXPLANATIONSGreek ‘disease’• Initial version (1st MOU): focus on the public

sector and the fiscal deficit (a piecemeal revelation of the MOU measures).

• Subsequent version (after the 1st MOU’s reviews and as the private sector came also under attack): added focus on the private sector and the falling competitiveness.

• It identifies 2 major Greek deficiencies: (a) large and persistent fiscal deficits financed through borrowing (which created large external debts) and (b) a falling competitivess.

• This explanation was expressed by the EU, the ECB, commentators and think-tanks of the euro-core countries but also by the Greek politico-economic establishment.

• It identifies 2 major Greek deficiencies: (a) large and persistent fiscal deficits financed through borrowing (which created large external debts) and (b) a falling competitivess.

• These deficiencies were caused by nationally-specific policy errors, i.e. it is a Greek ‘disease’ (e.g. Greece is a special type of economy prone to fiscal profligacy, clientelism and relatively high wages. Structural deficiencies are a mere consequence of these errors.

• Greek economy is marred by low productivity, relatively high wages and a big public sector. High wages are the product of the big public sector which is clientelist, has low productivity and a falling ability to collect taxes (due to clientelism fomenting tax evasion). Consequently, fiscal deficits are accumulated. These are financed through loans resulting in a widening external debt (expressed in a deteriorating current account). Cheap borrowing was possible because of accession to the EMU. Moreover, Greece forfeited statistics and violated EMU’s provisions. With the advent of the 2007-8 crisis international financial markets started scrutinizing fiscal deficits and external debts. Consequently, the unsustainability of the Greek debt was discovered and the Greek crisis erupted.

• As soon as the 1st MOU program started failing austerity had to be expanded to the private sector. In order to justify it the problem of competitiveness was surfaced. It was argued that not only the public but also the private sector is characterized by low productivity, high wages and rigid labor market regulation culminating in a falling competitiveness. Consequently, the current account was caused by both public borrowing and diminishing exports and increasing imports. High relative wages fueled consumption which was directed towards imports, since domestically produced goods were uncompetitive. Thus, Greek workers collectively (private and public sector) are overpaid and inefficiently working.

• The Greek ‘disease’ suffered a hit when other EMU countries required bail-out. The initial reaction was to attribute the expansion of the problem to contagion from Greece. This, rather weak argument, was supplemented by collectively branding these countries as EMU’s outcasts: economies prone to fiscal and banking profligacy. Instead of a Greek a South ‘disease’ was discovered.

• In analytical terms, the Greek ‘disease’ explanation hinges upon the Twin Deficits Hypothesis which contends that there is a strong link between the a fiscal deficit will lead to a current account deficit. A number of empirical studies have not verified this hypothesis.

EMU is not an OCA and cannot be one• expressed mainly by Anglo-Saxon

commentators either neoliberal or neo-Keynesian.

• Main argument: EMU is a non-Optimal Currency Area (OCA) which is prone to asymmetric shocks that exacerbate national ‘diseases’.

• This view centers only passingly on the Greek case per se. It takes it, as well as those of the other PIGS, as a springboard to spearhead its main criticism: EMU is inherently faulty.

• It does not absolve Greece from being responsible for the problem. Particularly the neoliberal accounts reiterate the Greek profligacy argument. But the crux of their argument is against the EMU: ‘It can’t happen, it’s a bad idea, and it can’t last’.

• This anti-EMU emphasis has a twofold explanation:

(a) geopolitical: ‘lead to increased conflicts within Europe and between Europe and the United States’

(b) academic: theory of Optimal Currency Area (the closest thing mainstream economics have to the Marxist disproportionality (or uneven development) thesis).

• This mainly Anglo-Saxon explanation of the Greek crisis while sharing the fiscal profligacy argument of the first explanation recognizes a rather weak structural cause. It concerns mainly the sphere of circulation (i.e. how the common currency is related to diverse national economies) and has not much to do with the sphere of production per se.

Greek disease cum EMU’s rectifiable flaws• Expressed mainly by European analysts in

favor of European unification but with ideological or practical reservations regarding its actual process (neo-liberal etc.). Predominantly Keynesian (or post-Keynesian) origins.

• Main argument: the Greek crisis has been caused by a combination of national policy errors (high fiscal deficits and debt) coupled with problems created by the incomplete economic unification of the EMU. A deepening of the economic and political unification of the EU (fiscal and banking union, political union) will solve these problems.

• Post-Keynesian emphasis on EMU’s imbalances and particularly those associated with the balance of payments (hence the current account). As such it points out to a structural characteristic of the EMU which sometimes it has been branded as neo-mercantilism: the Eurozone is structured in such a manner as to merit the trade surpluses of the Northern countries against the trade deficits of the Southern countries. This argument is also in the more radical post-Keynesian ‘financialization’ explanations. On the other hand, the current account imbalances argument has been taken up by more conservative theorists that do not ascribe to the ‘financialization’ thesis but aim for a more unified European integration.

• It offers a weak structural explanation: structural problems derive from the sphere of circulation but not the sphere of production. It agrees with the 2nd mainstream explanation with regarding OCA theory. But it believes that a more unified economically and politically EU can overcome them. In this belief it departs from the harder versions of the 2nd explanation which believe that an economic and political unification of the EU similar to that of the US is impossible. This is the second major problem of this perspective: Its political and economic voluntarist faith in European integration goes against historical wisdom. European national political and economic identities are deeply entrenched and the crisis emphasized them..

Mainstream explanations: A Critique• Mainstream explanations of the Greek crisis

evolved from monistic to a more eclectic mix. The more articulate discern two sets of causes:

(a) internal causes: exorbitant public expenditure, weak tax collecting mechanism, corruption and clientelism (even cronyism), over-regulated labor and product markets, high wages, non-market friendly institutional environment, deteriorating competitiveness etc.(b) external causes: EMU’s deficiencies, repercussions of the 2007-8 crisis etc.Behind this eclecticism hide versions (or combinations) of the three previously delineated explanations.The majority of them ultimately understand the internal causes through the Twin Deficits Hypothesis.

• Wages are posited as the factor triggering both the fiscal and the current account deficits. The typical argument is that Greek (nominal) unit labor costs (ULC) increased faster than those of the other European countries. Thus they worsened both the budget deficit and the current account deficit. They could be other analytical choices: the deterioration of the fiscal deficit can be rightfully attributed to upper-class’ notorious tax evasion and cronyism. The former depresses public revenues and the latter augments public expenditure; thus, in conjunction, derailing the fiscal deficit. However, the mainstream explanations stick, for obvious reasons to the supposedly high wages as the main cause of the big and persistent fiscal deficits.

• Well-established disputes of this argument:(1) (nominal) ULC is not a convincing measure of competitiveness.(2) The Kaldor paradox argues that competitiveness depends not only on low wages (costs competitiveness) but also on qualitative factors (structural competitiveness).(3) Wages have been constantly lagging behind productivity (which increased faster than that of Germany). Thus, real ULC (i.e. the wage) have been falling continuously for several decades.(4) A decrease in wages aiming to restore competitiveness presupposes that rival economies will maintain their wages stable or, at least, will reduce them less.

• Mainstream explanations have also wider problems:

(a) They totally underestimate the role of the 2007-8 capitalist crisis. This is unanimously considered as a mere financial crisis without origins and causes in the sphere of real accumulation. However, if this crisis is so significant and lengthy as it appears to be, it must surely have some basis on the main sphere of economic activities (the sphere of production).(b) They consider the Greek crisis as independent of the 2007-8 crisis. The 2007-8 crisis has only an exogenous impact on the Greek economy by worsening the international economic environment and setting off grey expectations about sovereign debts.

(c) They fail to appreciate the fundamental structural dimensions of the problem and relegate it either to policy errors and/or to weak structural origins. The 1st perspective, faithful to the typical neoclassical approach to economic crises, considers the Greek case a national specificity created by bad policies. The 2nd perspective recognizes a weak structural cause concerning the sphere of circulation (i.e. how the common currency is related to diverse national economies). Concomitantly, Greek and the Eurozone crises have to do mainly with EMU’s architecture. The 3rd perspective also attributes the structural problems to the sphere of circulation (with the additional argument that, contrary to the second perspective, these problems can be surpassed) and neglects the sphere of production.

RADICAL EXPLANATIONS

• The main points that differentiate them from the mainstream explanations are the following:

(a) They emphasize the crisis-prone nature of capitalism, thus focusing on its world structure and the 2007-8 crisis.(b) They are critical of neoliberalism.(c)They criticize EMU’s neoliberal architecture and argue either for its dissolution or for its radical overhauling.

Overall, radical explanations are shy of recognizing the general deficiencies of the capitalist system; although several of them do mention them but in a rather implicit of disguised manner. They do not think that the immediate problem is capitalism as such but rather its forms of management.

• The more popular Radical explanations are based on the ‘financialization’ thesis, which argues that in modern capitalism finance (i.e. the operation of money capital) assumes an increasing primacy in relation to other capitalist activities.

• Other versions do not exist: e.g. as a fiscal crisis caused by the tax-evading and crony nature of Greek capitalists and/or adding the EMU trade imbalances (3rd variant of mainstream explanations). The more traditional underconsumptionist explanations of crises (either of the Marxist Monthly Review (MR) or the Keynesian variant) are not popular as they do not fit to empirical data (the period preceding the crisis’ onset was characterized by a spectacular growth of consumption.

‘financialization’: a problematic theory• Capitalism returned to a pre-capitalist stage:

banking in feudalism was based on unequal exchange. Once primary accumulation of capital took place the monopolistic feudal rules were abolished and capitalist competition ruled. ‘financialization’ argues that there is a return to the pre-capitalist modes of operation. Interest ceases to be a part of surplus-value and acquires an independent existence. Concomitantly, money capital is autonomised from ‘productive’ capital but also dominates the latter. If the latter is the source of wealth, this entails a stifling of productive investment and thus of the accumulation of capital. How is it possible in the long-run such a deformed capitalism to exist?

• Regarding the 2007-8 crisis, ‘financialization’ argues that it is not an a-la-Marx crisis but a financial crisis (a crisis of financialised capitalism). They agree with mainstream theories. If the current crisis is so deep and prolonged as the ‘financialization’ theories accept then how it cannot be based on the fundamental economic sphere (the sphere of production)?

• 2 ‘financialization’ explanations of the Greek crisis:

(a)‘financialization’ in the context of the North – South divide (imbalances that caused the Greek crisis stem from the EMU) – e.g. Lapavitsas.

(b)‘financialization’ in the national context; the North - South divide is an erroneous dependency argument – e.g. Milios & Sotiropoulos.

• Lapavitsas argues the Greek is a debt crisis (agreeing with the mainstream) but he adds that its roots lay in:

(a)financialised capitalism (that caused the 2007-8 crisis which financial and the rate of profit has not role in it)

(b)the neo-mercantilist character of the EMU (which is not an OCA and is based on three pillars:

(1) the ECB which follows euro-core’s prerogatives(2) fiscal austerity(3) relentless pressure on wages to ensure competitiveness

Point 3 agrees with the mainstream arguments on competitiveness. Euro-core pressurized wages more and got a permanent competitive advantage against the euro-periphery. This is the mainstream argument in reverse: not the lazy South but the over-prudent North caused the problem.

Lapavitsas: imported ‘financialization’?

Thus, the Eurozone was polarized in a North with trade surpluses and a South with debts: the North gave loans to the South in order for the latter to buy its products.The 2007-8 crisis disrupted this structure as international financial markets questioned the creditworthiness of South’s sovereign debts.Eurozone’s crisis began as EMU transmitted the world crisis in Europe because of the imbalances that were latent within it.Till this point Lapavitsas’ analysis does not differ essentially from post-Keynesian analyses which accept a North – South divide argumentEMU cannot be rectified. Greece’s only solution is Grexit. Regarding the relationship with the EU (i.e. in economic terms basically the Common Market) he remains agnostic.

• Lapavitsas explanation suffers from the general weaknesses of the ‘financialization’ thesis:

No reference to the production structure of the Greek and the other EMU economies.

Unable to see the existence of relations of economic (imperialist) exploitation between the North and the South (or else relations of ‘broad’ unequal exchange) and he understands only a reversed and problematic version of the ‘narrow’ unequal exchange.

Uncritically accepts the mainstream arguments about Greek relatively high wages being the cause of Greece’s deteriorating competitiveness.

• Lapavitsas’ ‘financialization’ suffers empirically:

The Greek financial system was significantly less leveraged than the Western ones.

Greek workers’ high private debts: a new phenomenon (began with euro) and smaller than in the West.

Thus ‘financialization’ cannot be discovered inside Greece and has to be imported (through EMU’s neo-mercantilist structure).

• Also problematic policy suggestions: If this is a debt crisis, it can be solved not

by exiting EMU but making it a full OCA. If is deeper (grounded to the sphere of production) then exiting the EMU and remaining within the Common Market want suffice. A full exit from the EU is required.

• Contra to Lapavitsas, it was not the loss of competitiveness that gave rise to high indebtedness, but the other way around.

EMU (bringing together countries with very different rates of growth and profitability) gives rise to high levels of borrowing for the euro-periphery (because it has higher profit rates which attract euro-core capital).

This was facilitated by euro’s low interest rates. Foreign loans boosted euro-periphery’s domestic demand, therefore giving rise to increasing inflation and the deterioration of competitiveness.

Milios & Sotiropoulos: ‘strong Greece’?

• Reject the North - South (as problematic dependency theory):

Foreign loans did rob Greece but boosted growth (agree with the pre-crisis mainstream argument that current account deficits were good imbalances because euro-periphery countries with relatively low levels of real GDP per capita were catching up with richer north European economies).

This mainstream and Milios & Sotiropoulos argument is erroneous: Sustained current account deficits did not finance productive investment imports of euro-core’s. Greece’s productive structure instead of being developed it was actually eroded.

Because of this error Milios & Sotiropoulos implicitly accept the mainstream convergence thesis which has been fully disproved.

• Milios & Sotiropoulos replicate the mainstream success story (‘the strong Greece’) presented before the crisis. Then they add ‘financialization’:

Modern capitalism is financialised (extreme leveraging and financial bubbles). With the 2007-8 ‘financial’ crisis the till then malevolent euro-periphery’s CA deficits were blown apart. In order to sustain them fiscal deficits were augmented and this led to the euro-periphery’s collapse.

EMU played only a peripheral role in this affair (although they accept that it not an OCA and it is a neoliberal project). The crisis exposed its weaknesses and its class nature. However, the solution is not the exit from the EMU but the progressive restructuring of the EU.

• Milios & Sotiropoulos ‘financialization’ explanation suffers from the general deficiencies of this approach already mentioned above. They share also the particular errors characterizing Lapavitsas’ analysis and criticized above. On the points that they differ they err on the other side. For example, instead of Lapavitsas’ reversed version of ‘narrow’ unequal exchange they throw out any theory of unequal exchange. Finally, their analysis of the EMU and the EU is simplistic and cannot see the relations of economic (imperialist) exploitation that exist within them. The same holds about their policy proposals.

• In toto, ‘financialization’ explanations have a weak structural emphasis by not considering the problems in the sphere of production. For this reason they fail to account adequately for the Greek case.

A MARXIST STRUCTURAL EXPLANATION• A strong structural explanation of the

Greek crisis: the fundamental causes in the sphere of production.

• 2 structural components:(a)‘internal’: the 2007-8 economic crisis is an a-

la-Marx crisis (tendency of the profit rate to fall) which rocked the Greek economy (and the other developed ecconomies),

(b)‘external’: imperialist exploitation (i.e. ‘broad’ unequal exchange) within the EU worsened the position of Greece and aggravated the crisis

also ‘external’ causes. These come from the relations of imperialist exploitation (i.e. unequal exchange) that exist within the EU and which divide it between North (euro-core) and South (euro-periphery) economies.

• A strong structural explanation of the Greek crisis: the fundamental causes in the sphere of production.

• The crisis is a consequence of the imperfect resolution of the 1975 structural crisis.

• 2 structural components:(a)‘internal’: the 2007-8 economic crisis is an a-

la-Marx crisis (tendency of the profit rate to fall) which rocked the Greek economy (and the other developed economies): crisis of overaccumulation caused by falling profitability due to the increase of the Organic Composition of Capital (OCC). ‘Financialization’: a consequence not a cause

(b)‘external’: imperialist exploitation (i.e. ‘broad’ unequal exchange) within the EU worsened the position of Greece and aggravated the crisis

The ‘internal’ cause: a falling rate of profit

► 1973-5 crisis:• 3rd global crisis• crisis of overaccumulation of capital caused by

a falling profit rate due to the increase of the OCC

• structural crisis: requires a restructuring of the internal and external (international) systemic architecture

►global waves of capitalist restructuring :(1) conservative Keynesian policies (2) monetarism (national economy)(3) open-economy neoliberalism (‘globalisation’)

However, there are national differences and variations to the global trends.

► Successes and failures: ‘silent depression’• Partial recovery of profitability &

accumulation via increased exploitation• Reinvigoration of absolute surplus-value

extraction• ‘Globalisation’• Failure to solve the systemic problem and

overaccumulation/ the flight ahead: ‘financialization’

►The 1973 crisis and capitalist restructuring in

Greece • a doubly onerous crisis: overaccumulation

crisis plus post-dictatorship radicalism• Contrary to international trends, the belated

implementation of progressive Keynesian policies, ‘social-mania’ and the creation of welfare state/ growth and progressive income redistribution

• Failure: a successful prescription at a wrong time

►Neoliberal restructuring policies

• 1990 ND government: mixed introduction of monetarist and neoliberal measures/ catching up with the international trends

• Restrictive macroeconomic policies and regressive income redistribution/ privatizations, opening of the economy, deregulation of labour relations, welfare cuts etc.

• PASOK Simitis’ governments: continuation plus religious adherence to the EMU requirements/ the two ‘robberies’: (a) stock-exchange, (b) post-euro mass consumption goods’ inflation

• The Balkan ‘Edorado’ and the artificial growth of the 2004 Olympics

►Conservative Keynesian capitalist restructuring and the shift to neoliberal directions

• 2nd PASOK governement’s 1985 stability programme: decisive conservative turn→conservative Keynesian restructuring reinforced subsequently

• EU accession: promises & dangers• From 1985: gradual increase of actual work-

time (broader phenomenon reinforced by Southern specificities)

►Ambiguous esults of Greek capitalist restructuring waves:A partial recovery of profitability (mainly through increased exploitation).An insufficient devalorisation of capital

►Conservative Keynesian capitalist restructuring and the shift to neoliberal directions

• 2nd PASOK governement’s 1985 stability programme: decisive conservative turn→conservative Keynesian restructuring reinforced subsequently

• EU accession: promises & dangers• From 1985: gradual increase of actual work-

time (broader phenomenon reinforced by Southern specificities)

►Results of Greek capitalist restructuring waves:Ambiguous as elsewhere

► Greece: from the EEC to EU and the EMU• Securing the system after the dictatorship• Imperialist upgrading & the vital space• Danger of the opening the economy and

dismantling a coherent productive model• Accession at a lucky moment: political

willingness and sweeteners (aid packages etc.)• Grey times: faltering of capital accumulation,

expansion to the East and the beginning of troubles

► EU and the EMU• regional imperialist bloc with pyramidoid

structure• Competition with the other major imperialist

blocs, internal rivalries and co-operation, exploitation of other countries

• Internal hierarchical pyramid: North and South

The ‘external’ cause: EU ‘broad’ unequal exchange

►EU’s North-South divide:

• Competition on the basis of absolute advantage

• ‘broad’ unequal exchange: capitals from more developed economies (i.e. higher OCC) competing within the same market with capitals from less developed economies (lower OCC) reap extra profits through unequal exchange with the latter.

• The ‘commanding heights’ (EC, ECB etc.) follow the prerogatives of the dominant Northern economies to the detriment of the South. Thus, the conduct of crucial policies (monetary, trade, exchange rate etc.) and the institutional arrangements favor the North.

► Greece in the EU: Greek capital’s modern ‘Big Idea’

• Loss of competitiveness within the EU (competition with more developed capitals without protectionism)

• Erosion of Greece’s productive structure: Greek capitals could not compete with Western ones since accession to the Common Market. Several industrial sectors hit hard. The agricultural sector was irrationally restructured via the Common Agricultural Policy (CAP): initially thrived through subsidies and then was shrink abnormally. Greek capital’s retreat to the quasi-protected area of non-internationally tradable goods and creation of oligopolistic structures.

• 1990s - a period of grace: the Balkan ‘Eldorado’: the collapse of the Eastern bloc and the imperialist expansion to the Balkans and Central and Eastern Europe

• entrance to the EMU (2001): celebrated as the ‘national goal’ of participation in the top EU league. However, underneath the euphoric accounts structural problems continued to amass and worsen (e.g. trade and current account balances). The strong Euro diminished further Greek exports, increased import penetration and weakened domestic production. These were covered through the cheap credit gained because of the EMU.

• the 2007-8 global crisis and the subsequent EU crisis blew this house of cards apart.

► The eruption of the crisis• The 2007-8 crisis in the developed economies

triggered the latent structural problems of Greek capitalism: the unresolved profitability and overaccumulation problems re-emerged and the imperialist ‘subsidies’ from the Balkans diminished rapidly.

• State subsidization of faltering capital accumulation (and not excessive wages) → fiscal deficit/ the current crisis increased the need for such counter-cyclical measures but made them more expensive (because of the upheaval in finance)/ competition with other capitalisms over the burdens of the counter-crisis measures → fiscal crisis

• Fiscal deficit financed through external debt (because EMU effectively prohibits internal borrowing, e.g. national bonds etc.)

• The loss of competitiveness aggravated both

Figure 1. Surplus value, net operating surplus, and unproductive activities

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Net Operating Surplus

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In figure 1 we observe a constant rise on the unproductive activities which is estimated as the difference between surplus value and net operating surplus (net profits).

Figure 2. Productivity and Wage

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In figure 2 we observe a vigorous increase in productivity for the period 1960 - 1973 . After 1973, the growth of productivity retards whilst during the decade of 1980s remains stagnant. In the beginning of the 1990s productivity rises again till the middle of 2000s when starts to decline bearing similarities with the 1970s’. Turning now to the real wage, we can observe that for the whole period it follows productivity but it never gets higher.

Figure 3. The rate of surplus value

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In figure 3 we observe an increase in the rate of surplus value during the period 1960 - 2009 which is characterized by ups and downs. during the 1960s the rate of surplus value increases. At the beginning of 1970s till the early 1980s declines and then it is upturned. Finally, at the middle of the 2000s, the rate of surplus value reaches its highest peak and then it sharply drops indicating the predicament of capitalists to extract more surplus value.

Figure 4. The value composition of capital

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Figure 4 depicts the evolution of the value composition of capital (C/V) as this is captured by the ratio of gross fixed capital stock (C) to variable capital (V). As we can see the value composition of capital steadily increases for almost the whole period. But at the beginning of the 2000s it stagnates; which can possibly be attributed to the deindustrialization of the Greek economy with the massive escape of Greek manufacturing enterprises to the East.

Figure 5. The general rate of profit

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Figure 5 depicts the evolution of the general rate of profit and from its trajectory we can discriminate three phases before the onset of current crisis. The first one is the period 1960 - 1973 where the general rate of profit is at a high level though with a small decline. The second one is the period of crisis (1973 - 1985) when the general rate of profit falls dramatically. The third period is that of neoliberalism (1985 – 2009) when the general rate of profit displays a slight recover and then remains stagnant.

Figure 6. Net Rate of Profit

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In figure 6 we can similarly discriminate three phases for the net rate of profit. The first one is during the ‘Golden Age’ which is described by a high level of the net rate of profit. The second one is the period of crisis when the net rate of profit declines sharply and the third period is the one of neoliberalism which presents an anemic recovery of the net rate of profit. This recovery is mainly attributed to the implementation of neoliberal policies which were introduced by reforms on the labor market

Figure 7. Real GDP (2005) and real unit labor cost

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Real GDPReal Unit Labor Cost

The argument concerning reforms on the labor market which contributed to the slight recover of the net rate of profit becomes more eloquent in figure 7 where we present the real GDP and the real unit wage cost. Without a doubt from the early 1990s, GDP exhibits a positive growth whilst the real unit wage cost declines.

Figure 8. Net operating surplus and net investment at 2005 prices

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In figure 8 we can observe that net investment measured at 2005 prices reveals a considerable growth at the mid of 90s’ reaching its highest peak at 2007. At the same time an analogous growth is exhibited by the net operating surplus measured at 2005 prices. Eventually, net investment falls in 2007 and it is associated with the stagnation on the mass of profits. Concluding, a fall in the net rate of profit is not enough to cause crisis but it must be combined with a falling general rate of profit.

Figure 9. Intra EU15 terms of trade

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From figure 9 we can observe the following:

• From 1963 till 1981, when Greece becomes a full member of the EEC, the terms of trade exhibit an annual growth of 2,1% and manage to converge with the other two countries, and especially with Austria.

• From 1981 to 2002, when the EMU is officially established, the terms of trade decline annually by 0,06% which reveals a loss of competitiveness in relation with the rest of the EU15 countries.

• Finally, from 2002 to 2009, the terms of trade remain stable which means that the entrance in the eurozone didn’t play any significant role to the competitiveness of Greek economy.

So for Greece, the exposition to the common market and the gradual loss of monetary and fiscal instruments it seems that resulted to a decline in the terms of trade. Turning now to the other two countries:

• Sweden exhibits an annual increase of 0,5% till the 1995, when it becomes a full member of the EU. From 1995 to 2009 the terms of trade exhibit an annual decline by 0,1% whilst the decision of not entering in the EMU did not actually change the trend.

•Austria exhibits an increase in the terms of trade till the entrance in EU at 1995, by 0,1% per year. From 1995 to 2009 the Austrian economy exhibits an annual increase by 1,1%, whilst the decision of entering in the EMU did not either changed the trend.

Table 1. First Greek MOU’s projectionsSource: EC (2010, pp.12 - 13)  2009 2010 2011 2012 2013 2014

Real GDP growth (Percent change over the previous period)

-2 -4.0 -2.6 1.1 2.1 2.1

General government balance (percent of GDP)

n.a. -10.5 -14.2 -15.6 -15.9 -15.6

General government gross debt (percent of GDP)

115.1 133.2 145.2 148.8 149.6 148.4

  2009 2010 2011 2012

Real GDP growth (Percent change over the previous period)

-3.1 -4.9 -7.1 -6.4

Table 2. Actual GDP growth ratesSource: EUROSTAT http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&plugin=1&language=en&pcode=tec00115

Table 3. Average annual growth rates

Golden Age(1960 - 1973)

Crisis(1973 - 1985)

Neoliberalism(1985 - 2009)

y 8,13% 0,31% 1,90%

ŵp 8,06% 1,14% 1,13%

RSV 1,99% -0,90% 1,37%

VCC 1,99% 2,81% 2,33%

GROP 2,31% -3,71% -0,96%

NROP -0,32% -4,73% -2,48%

GDP (real) 8,19% 1,72% 2,27%UWC (Real) -3,29% 1,26% -0,65%

NOS (real) 17,49% -2,60% 1,34%

INV (Real) 9,80% -7,03 0,67%