DP8996 An Explanation of the Greek Crisis:"The Insiders - Outsiders Society"

Author(s): Tryphon Kollintzas, Dimitris Papageorgiou, Vanghelis Vassilatos
Publication Date: May 2012
Keyword(s): competitiveness, Greek crisis, growth, insiders-outsiders, total factor productivity, twin deficits
JEL(s): D72, E62, E65, F34, O43, O52
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8996

In this paper we present stylized facts of the Greek economy that characterize the causes and the consequences of its ongoing crisis. Then, we offer an explanation that can account for those causes and consequences. This explanation is based on the view of Greek society as consisting of two groups with conflicting goals:'insiders' and 'outsiders'. Insiders are enjoying rightful and unrighteous benefits and the system is protecting them from their own potentially unlawful behavior, competition and meritocracy. Outsiders are the rest of society. The economic consequence of the 'insiders - outsiders society' is the accumulation of public and foreign debts as well as relatively low overall growth - features that characterize the Greek economy, for some time. Finally, following the insiders- outsiders explanation, we offer policy recommendations for an exit from the crisis and the resumption of growth.