Greece: Are We Wasting a Good Crisis?

Bank of Latvia Economic Conference, October 2014

Michael Haliassos Goethe University Frankfurt, CFS, SAFE, and CEPR

What caused the Greek Debt Crisis? The political process behind the numbers

•  Following defeat of communists in civil war: -  The left and left-of-center were excluded from the public sector

•  Election of PASOK socialists (A. Papandreou) in 1981: -  seen as a chance to compensate those previously excluded by offering party

supporters public sector jobs •  The Right followed this example in order to compete •  Key consequence for public sector recruiting:

-  Pay (most) public employees little (max number), expect nothing -  Create an inefficient public sector

-  No monitoring: all ‘excellent’ •  Build a state-dependent private sector (turning producers to beggars)

-  Offer public projects in exchange for party support or kickbacks -  Induce concentration of private sector to public works companies -  Drive exports to a negligible share of GDP

•  Reduce legitimacy of paying taxes: -  tax evasion encouraged by bad use of funds

2

What needs to be done in a fiscal crisis •  Measures

-  Reduce budget deficit, ensure at least primary surplus -  Create repayment potential of borrowers over the medium run

•  Deficit reduction -  Reduce Government Spending

•  Reduce and streamline expenditures -  Reduce public employee salaries, wages, and pensions -  Reduce employment in the public sector

-  Increase taxes •  VAT? Real Estate? Tax evasion?

•  Creation of repayment potential -  Boost competitiveness

•  Reductions in wages and salaries •  Open up professions •  Increase flexibility in labor markets: ease of layoffs

-  Boost entrepreneurship •  Improve conditions for starting and running a business •  Improve investor protection •  Encourage innovation

-  Boost investment

3

Greek Fiscal crisis: What has happened?

•  Measures -  Reduce budget deficit, ensure primary surplus -  Create repayment potential of borrowers over the medium run

•  Deficit reduction -  Reduce Government Spending

•  Massively reduce and streamline expenditures •  Reduce salaries, wages, and pensions •  Massive layoffs in public sector •  Reduce public investment

-  Increase taxes •  Especially on VAT and on real estate

•  Creation of repayment potential -  Boost competitiveness

•  Reductions in wages and salaries •  Protracted confrontation with closed professions •  Increased flexibility in labor markets: ease of layoffs

-  Boost entrepreneurship •  Improve conditions for starting and running a business •  Improve investor protection •  Encourage innovation

-  Boost investment

4

The assault on household liquidity

•  Lower wages, salaries, and pensions: Did they boost competitiveness?

•  Unemployment spells and greater unemployment risk: especially for the young

•  Taxes on illiquid real estate: Taxes on the rich and liquid?

5

Unemployment Rate and Nominal Compensation per Employee, Greece

Source: European Commission, 2nd Adjustment Program, April 2014

6

2. Macroeconomic and financial developments

13

6. The programme projections point to a positive annual GDP growth rate of 0.6% in 2014. The growth of the Greek economy is expected to pick up in the course of 2014 and beyond, supported by strengthened exports and investment on the back of improving competitiveness resulting from the structural reforms undertaken in labour and product markets. Overall, investment is projected to turn around, led initially by publically funded investment stemming from the restart of the motorway projects in H1 2014 and faster absorption of EU structural funds. The improved business environment is expected to attract more private investment. Tourism is likely to register another strong year, as suggested by the rapidly rising early bookings’ from the EU; last year’s EU arrivals still were some 20% below their 2007 peak. The recent negative contribution to export growth from transportation services is forecast to fade out, as the slump in international shipping bottoms out. The bank recapitalisation process and fiscal stabilisation are set to support growth. Nevertheless, despite the gradual improvement in the labour market, private consumption is still expected to decline slightly in line with disposable income developments. Falling prices have mitigated the impact of recent wage adjustment. Prices are expected to continue falling during 2014.

7. The economic recovery is expected to accelerate, with GDP growth reaching 2.9% in 2015 and 3.7% in 2016. Private consumption is expected to begin to turn around in 2015. Private investment is expected to strengthen as credit conditions improve, supported by a swift and efficient resolution of non-performing loans, and the further clearance of government arrears injecting much-needed liquidity into the private sector. The programme projections also expect significant increases in agro-food exports, where export and credit growth has already been observed over the last year. Greek export performance is projected to continue to strengthen on the back of improved labour cost competitiveness, increasing trade credit and a more conducive external environment. However, given that structural changes require time, issues of the small size of establishments, a limited export base, and over-regulation will still weigh on overall outcomes (see Box 3).

8. Prices, as measured by the GDP deflator, have been falling faster than projected so far under the programme. The 2013 GDP deflator was revised down to -2.1% compared to a forecast of -1.1% in July 2013, with important methodological changes affecting this price measure2. Lower prices have offered some additional support to household purchasing power and impacted positively on price competitiveness. The HICP index fell by 0.9% in 2013 (against a forecast of a fall of 0.8% in July 2013). HICP inflation is expected to remain in negative territory also in 2014 and only gradually pick up thereafter.

9. Total employment is forecast to start growing again and increase by 0.6% in 2014 and by 2.6% in 2015. The ratio of unemployment has reached 27.3% in 2013. Against the background of high level of unemployment and wage agreements suggesting moderation, a further decline in compensation of employees by 1.5% is expected.

Graph 7. Growth in nominal compensation per employee and unemployment

Graph 8. Monthly HICP developments and annual averages

-10

-8

-6

-4

-2

0

2

4

6

0

5

10

15

20

25

30

2005 2007 2009 2011 2013 2015 2017

%%

Unemployment rate total (Eurostat Definition)Nominal compensation per employee (total economy, growth rate) (rhs)

forecastforecast

-4

-3

-2

-1

0

1

2

3

4

5

6

7

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

y-o-y %

Monthly HICP

forecast

Annual average

Source: European Commission Source: European Commission

2 The recent ELSTAT GDP data revision involved changes in the methodology of calculating the GDP deflator in the results of the quarters

of 2012 and 2013. This addressed a significant and persistent discrepancy between the GDP (output side) deflator and the GDP (expenditure side) deflator, which created bias in the results of the estimates of volume and price changes in the quarterly accounts.

What was the size of the liquid asset buffer? The Composition of Household Net Wealth at the Start of the Crisis

Greece versus Germany Source: Author Computations based on HFCS First Wave

050

100150200250300350400450500550600

Amou

nt in

1000

Euro

s, GR

10 20 30 40 50 60 70 80 90 100Percentile Position in Net Wealth Distribution

Financial Asset

Mortgage Debt

Total Asset

Total Real Asset

Total Debt

Non-mortgage Debt

Source: ECB Household Finance and Consumption Survey, 1st Wave

7

0

200

400

600

800

1000

1200

Amou

nt in

1000

Eur

os, D

E

10 20 30 40 50 60 70 80 90 100Percentile Position in Net Wealth Distribution

Financial Asset

Mortgage Debt

Total Asset

Total Real Asset

Total Debt

Non-mortgage Debt

Source: ECB Household Finance and Consumption Survey, 1st Wave

Lowering Wages: Did it boost competitiveness ? Change in ECB Harmonized Competitiveness Index since 1999Q1

Eurozone Countries, Based on Unit Labor Costs In 2009Q4, 2011Q4, 2012Q2 and 2013Q3. Source: ECB Statistical Data Warehouse

8

The Evolution of Macroeconomic Aggregates Greece

following a sizeable drop in GDP over the period

9

2007$ 2008$ 2009$ 2010$ 2011$ 2012$Household$Consump4on$to$GDP$ 0.68$ 0.71$ 0.72$ 0.71$ 0.70$ 0.68$

Investment$to$GDP$ 0.27$ 0.24$ 0.19$ 0.18$ 0.16$ 0.14$

Exports$of$Goods$and$Services/GDP$ 0.24$ 0.24$ 0.20$ 0.22$ 0.24$ 0.25$

Imports$to$GDP$ 0.38$ 0.38$ 0.32$ 0.31$ 0.31$ 0.29$

0.00$

0.10$

0.20$

0.30$

0.40$

0.50$

0.60$

0.70$

0.80$

Household$Consump4on$to$GDP$

Investment$to$GDP$

Exports$of$Goods$and$Services/GDP$

Imports$to$GDP$

Note: Newly revised data show that Greece contracted by 5.4% in 2010 (4.9% previously estimated), by 8.9% in 2011 (7.1% previous figures). But for 2012 and 2013 the figures were revised upwards. For 2012, the new figures is -6.6% (-7% previously), and for 2013 it was -3.3% (-3.9% previously).

Export performance across adjustment countries Source: European Commission, Adjustment Program Report, 2014

2. Macroeconomic and financial developments

15

Box 3. Competitiveness and Greek export performance

Greece is quickly regaining its cost competitiveness after the significant losses of the past decade. In the run-up to the crisis, a spiral of increasing domestic wages and prices drove up Greek nominal unit labour costs (ULCs). In the period from 1995 to 2010, Greek ULCs and the HICP index increased by 21.1% and 17.0% respectively relative to Euro area trading partners. To promote a stronger domestic export base that can compete on global markets, to reduce dependence on imports and to narrow the current account deficit, reversing these previous wage and price excesses has been a key objective of the Greek adjustment programme from the outset.

By 2014, Greece is projected to have broadly regained its 1995 labour cost competitiveness position relative to the

Euro area. Supported by wide-ranging structural labour market reforms, such as wider use of decentralized wage bargaining, a lower minimum wage, and reductions in other non-wage labour costs, compensation per employee fell by 3.7% in 2012 and is forecast to decline by 7.8% in 2013 and by a further 1.5% in 2014. Overall, the ULC-based real effective exchange rate of Greece is forecast to fall by 21.6% between 2009 and 2014. Consumer prices are expected to fall in both 2013 and 2014. Over the period 2009-2014, the HICP-based real effective exchange rate is forecast to fall by 10.6% (see graphs 2.1 and 2.2).

-10

-5

0

5

10

15

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

y-o-y%

Source: European Commission

Graph 2.1. ULC

Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in Euro Area

forecast

80

85

90

95

100

105

110

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

2005=100

Source: European Commission

Graph 2.2. REER

REER ULC relative to EA

REER GDP deflator relative to EA

REER HICP relative to EA

forecast

Chart 1Graph 2.1. ULC

Chart 2Graph 2.2. REER

Despite the recovery in competitiveness, Greece’s export performance has lagged behind that of other programme

countries (see graphs 2.3 and 2.4). This relative under-performance cannot be explained purely by a slowdown of the world economy, and the Eurozone in particular. Several Greek-specific factors are responsible. In particular, the export sector has been hampered by a severe lack of trade credit amplified by initial uncertainty about the implementation of the programme and the effectiveness of policies, as well as a weakened domestic banking system. At that time, exports of travel services declined sharply as political upheaval and strikes put a severe break on tourism. International shipping, on which Greek exports of services are especially reliant, faced a severed oversupply due to the global economic slowdown following the financial crisis of 2008. All these headwinds have progressively faded since 2012. In addition, tourism also experiencing a significant boost last summer due to the political crisis in competitor destinations, namely Turkey and Egypt. This has contributed to a nascent recovery of export growth.

Chart 3Graph 2.3. Exports of goods (volumes; 2008=100)

Chart 4Graph 2.4. Exports of services (volumes; 2008=100)

0.8

0.9

1

1.1

1.2

1.3

1.4

1.5

1.6

05 06 07 08 09 10 11 12 13 14

Source: European Commission

Graph 2.3 Exports of goods (volumes;

2008=100)

IE EL ESLV PT EU28

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

05 06 07 08 09 10 11 12 13 14

Source: European Commission

Graph 2.4 Exports of services (volumes;

2008=100)

IE EL ESLV PT EU28

10

Cost of Living •  Eurostat: Greece experienced the greatest drop in real per capita GDP between 2009-13: 21.5%.

•  August 2014: 19th continuous month of negative inflation -  Primarily due to price drops in services and durable goods.

•  Food, hygiene and household cleaning items: of the 54 items recorded for the CPI, 43 items experienced price increases between Aug. 2009 and Aug. 2014, some > 30%.

•  Why? (Kathimerini, 12.10.14): -  Increases in VAT and on special consumption taxes, especially on fuel that hurt businesses. -  Dependence on imports of final and intermediate goods

•  6.5% and 11.5% of GDP, respectively. -  Shaken relationship between wholesalers and retailers.

•  Delays in payments during 2013 (average: 110 days) leads wholesalers to be very strict in its dealings with super markets, in order to avoid exposure to credit risk.

-  Poor distribution networks: •  Despite increased concentration in retail trade following the onset of the crisis, in 2013 the

number of food stores was 32576, and this raises the distribution costs, especially for sensitive and highly perishable goods such as milk.

11

The Dangerous Twist in the Political Debate

•  Lack of trust in the Northern partners -  Northerners only care for taxes and impoverishment and not for growth

•  Political dialog got misdirected: -  Instead of debating on the most promising reforms for productive potential and

growth, parties are debating whether •  the Northerners should interfere with our economy (Memorandum)

•  Consequence of giving priority to budget surpluses and salary cuts ahead of job creating reforms -  Every party now has to say it wants out of the Memorandum! -  Some parties want back to failed practices -  Other parties say they want reforms but have not yet made great progress -  The people are demoralized and disappointed: low confidence

12

The Enormous Scope for Reforms and the Exploitable Margins

Cutting the Gordian Knot: The Southerners’ Best Response

•  Productive potential -  Encourage Research and Development

•  Identify and promote pockets of excellence •  Encourage interaction between research and industry

-  Promote investment in dynamic, export-oriented firms -  Improve drastically ease of doing business

•  Salaries -  German workers are not paid Chinese salaries:

•  The “Made in Germany” principle -  Reward quality and initiative

•  Avoid horizontal cuts without evaluation •  Promote high-quality education

-  Introduce private universities with strict, international accreditation standards •  Keep promising young talent and senior experience in the South •  Promote interactions with universities abroad •  Utilize “export” potential

•  Establish independent research centers for economic and social policy

14

The most problematic factors for doing business: The Southern Perspective

Global Competitiveness Report 2013-14 Captured the opinions of over 13,000 business leaders in 148 economies

between January and May 2013. Responses refer to Greece

Rank Score

(out of 148) (1–7)

GDP (PPP) per capita (int’l $), 1990–2012

Percent of responses

Note: From the list of factors above, respondents were asked to select the five most problematic for doing business in their country and to rank them between

1 (most problematic) and 5. The bars in the figure show the responses weighted according to their rankings.

2.1: Country/Economy Profiles

198 | The Global Competitiveness Report 2013–2014

Key indicators, 2012

Population (millions) ........................................ 11.3GDP (US$ billions) ........................................ 249.2GDP per capita (US$) ................................. 22,055GDP (PPP) as share (%) of world total ............ 0.33

Global Competitiveness Index

GCI 2013–2014 ...................................................... 91 ..... 3.9GCI 2012–2013 (out of 144) ..................................... 96 ......3.9GCI 2011–2012 (out of 142) ..................................... 90 ......3.9

Basic requirements (20.0%) .......................................88 ......4.3Institutions .............................................................. 103 ......3.5Infrastructure ............................................................ 38 ......4.8Macroeconomic environment ................................. 147 ......2.8Health and primary education ................................... 35 ......6.1

Efficiency enhancers (50.0%) .....................................67 ......4.1Higher education and training ................................... 41 ......4.8Goods market efficiency ........................................ 108 ......3.9Labor market efficiency .......................................... 127 ......3.8Financial market development ................................ 138 ......2.9Technological readiness ............................................ 39 ......4.6Market size ............................................................... 47 ......4.4

Innovation and sophistication factors (30.0%) ...........81 ......3.5Business sophistication ........................................... 83 ......3.8Innovation ................................................................. 87 ......3.1

The most problematic factors for doing business

Access to financing ...........................................................22.4Inefficient government bureaucracy ...................................21.2Tax regulations ..................................................................14.5Policy instability .................................................................12.0Tax rates ..............................................................................9.8Corruption ...........................................................................6.9Restrictive labor regulations .................................................5.2Inadequate supply of infrastructure ......................................2.8Government instability/coups ..............................................2.2Insufficient capacity to innovate ...........................................1.9Poor public health ...............................................................0.4Inadequately educated workforce ........................................0.3Poor work ethic in national labor force ................................0.3Foreign currency regulations ................................................0.1Inflation ................................................................................0.1Crime and theft ...................................................................0.0

Greece

Stage of development

Factor

driven

Efficiency

driven

Innovation

driven

1

Transition

1–2

2

Transition

2 –3

3

Greece Innovation-driven economies

0 5 10 15 20 25 30

10,000

20,000

30,000

40,000

50,000

1990 1992 19961994 1998 2000 2002 20062004 20102008 2012

Institutions

Infrastructure

Macroeconomic environment

Health and primary

education

Higher education and training

Goods market efficiency

Labor market efficiency

Financial market development

Technological readiness

Market size

Business sophistication

Innovation

1

2

3

4

5

6

7

Greece Advanced economies

�������:RUOG�(FRQRPLF�)RUXP15

How important are the following factors in case that a company in your industry, based in Germany, would consider an investment in any of the southern European countries that are in crisis?

16

Investment barriers in EU crisis countries as perceived by German Financial Industry

Source: CFS Index Survey, April 2014

Answers Percentage of people who favored the following answers

Very important Important Less important Not important

Soundness of Public Finances 28,8 % 53,5 % 15,6 % 2,1 %

Attractive Tax System 20,7 % 57,5 % 19,6 % 2,2 %

Low wage level 9,4 % 27,1 % 56,2 % 7,3 %

Good eductional system / Human capital 62,3 % 33,5 % 2,6 % 1,6 %

Legal security 89,8 % 9,7 % - 0,5 %

Good infrastructure 29,2 % 59,8 % 8,3 % 2,7 %

Flexible Labor Market Structure (e.g. low power of labor unions, little dismissal protection, etc.)

14,2 % 50,9 % 30,1 % 4,8 %

Differential regulation / Bureaucracy 28,6 % 52,7 % 16 % 2,7 %

Ease of Doing Business Source: World Bank EDB 2014

17

Enforcing Contracts in Greece: How long does it take?

Ease of Doing Business Report 2014

5/4/2014 about:blank

about:blank 1/2

DB 2014 RANK 98 DB 2013 RANK*** 91 CHANGE IN RANK -7

DB 2014 DTF** (%POINTS)

41.14 DB 2013 DTF** (%POINTS)

45.52 IMPROVEMENT IN DTF**(% POINTS)

-4.38

Ease of Doing Business in

GreeceEnforcing Contracts

Indicator Greece OECD

1,300 529

14.4 21.0

39 31

Indicator

Time (days) 1,300

Filing and service 60

Trial and judgment 1,120

Enforcement of judgment 120

Cost (% of claim) 14.4

Attorney cost (% of claim) 10

Court cost (% of claim) 2.7

Enforcement Cost (% of claim) 1.7

Procedures (number) 39

* Not counted in the total number of procedures** The distance to frontier (DTF) measure shows the distance of each economy to the "frontier," which represents thehighest performance observed on each of the topics including Getting Electricity across all economies included inDoing Business. An economy’s distance to frontier is indicated on a scale from 0 to 100, where 0 represents thelowest performance and 100 the frontier. Read more...

***Last year's rankings are adjusted: they are based on 10 topics and reflect data corrections.

Time (days)

Cost (% of claim)

Procedures (number)

18

Global Competitiveness Index 2013-14

Captured the opinions of over 13,000 business leaders in 148 economies between January and May 2013.

The Global Competitiveness Report 2013–2014 | 15

1.1: The Global Competitiveness Index 2013–2014

GCI 2013–2014

Country/EconomyRank

(out of 148)Score (1–7)

Rank among 2012–2013 economies*

GCI 2012–2013

Switzerland 1 5.67 1 1Singapore 2 5.61 2 2Finland 3 5.54 3 3Germany 4 5.51 4 6United States 5 5.48 5 7Sweden 6 5.48 6 4Hong Kong SAR 7 5.47 7 9Netherlands 8 5.42 8 5Japan 9 5.40 9 10United Kingdom 10 5.37 10 8Norway 11 5.33 11 15Taiwan, China 12 5.29 12 13Qatar 13 5.24 13 11Canada 14 5.20 14 14Denmark 15 5.18 15 12Austria 16 5.15 16 16Belgium 17 5.13 17 17New Zealand 18 5.11 18 23United Arab Emirates 19 5.11 19 24Saudi Arabia 20 5.10 20 18Australia 21 5.09 21 20Luxembourg 22 5.09 22 22France 23 5.05 23 21Malaysia 24 5.03 24 25Korea, Rep. 25 5.01 25 19Brunei Darussalam 26 4.95 26 28Israel 27 4.94 27 26Ireland 28 4.92 28 27China 29 4.84 29 29Puerto Rico 30 4.67 30 31Iceland 31 4.66 31 30Estonia 32 4.65 32 34Oman 33 4.64 33 32Chile 34 4.61 34 33Spain 35 4.57 35 36Kuwait 36 4.56 36 37Thailand 37 4.54 37 38Indonesia 38 4.53 38 50Azerbaijan 39 4.51 39 46Panama 40 4.50 40 40Malta 41 4.50 41 47Poland 42 4.46 42 41Bahrain 43 4.45 43 35Turkey 44 4.45 44 43Mauritius 45 4.45 45 54Czech Republic 46 4.43 46 39Barbados 47 4.42 47 44Lithuania 48 4.41 48 45Italy 49 4.41 49 42Kazakhstan 50 4.41 50 51Portugal 51 4.40 51 49Latvia 52 4.40 52 55South Africa 53 4.37 53 52Costa Rica 54 4.35 54 57Mexico 55 4.34 55 53Brazil 56 4.33 56 48Bulgaria 57 4.31 57 62Cyprus 58 4.30 58 58Philippines 59 4.29 59 65India 60 4.28 60 59Peru 61 4.25 61 61Slovenia 62 4.25 62 56Hungary 63 4.25 63 60Russian Federation 64 4.25 64 67Sri Lanka 65 4.22 65 68Rwanda 66 4.21 66 63Montenegro 67 4.20 67 72Jordan 68 4.20 68 64Colombia 69 4.19 69 69Vietnam 70 4.18 70 75Ecuador 71 4.18 71 86Georgia 72 4.15 72 77Macedonia, FYR 73 4.14 73 80Botswana 74 4.13 74 79

Table 3: The Global Competitiveness Index 2013–2014 rankings and 2012–2013 comparisons

GCI 2013–2014

Country/EconomyRank

(out of 148)Score (1–7)

Rank among 2012–2013 economies*

GCI 2012–2013

Croatia 75 4.13 75 81Romania 76 4.13 76 78Morocco 77 4.11 77 70Slovak Republic 78 4.10 78 71Armenia 79 4.10 79 82Seychelles 80 4.10 80 76Lao PDR 81 4.08 n/a n/aIran, Islamic Rep. 82 4.07 81 66Tunisia 83 4.06 n/a n/aUkraine 84 4.05 82 73Uruguay 85 4.05 83 74Guatemala 86 4.04 84 83Bosnia and Herzegovina 87 4.02 85 88Cambodia 88 4.01 86 85Moldova 89 3.94 87 87Namibia 90 3.93 88 92Greece 91 3.93 89 96Trinidad and Tobago 92 3.91 90 84Zambia 93 3.86 91 102Jamaica 94 3.86 92 97Albania 95 3.85 93 89Kenya 96 3.85 94 106El Salvador 97 3.84 95 101Bolivia 98 3.84 96 104Nicaragua 99 3.84 97 108Algeria 100 3.79 98 110Serbia 101 3.77 99 95Guyana 102 3.77 100 109Lebanon 103 3.77 101 91Argentina 104 3.76 102 94Dominican Republic 105 3.76 103 105Suriname 106 3.75 104 114Mongolia 107 3.75 105 93Libya 108 3.73 106 113Bhutan 109 3.73 n/a n/aBangladesh 110 3.71 107 118Honduras 111 3.70 108 90Gabon 112 3.70 109 99Senegal 113 3.70 110 117Ghana 114 3.69 111 103Cameroon 115 3.68 112 112Gambia, The 116 3.67 113 98Nepal 117 3.66 114 125Egypt 118 3.63 115 107Paraguay 119 3.61 116 116Nigeria 120 3.57 117 115Kyrgyz Republic 121 3.57 118 127Cape Verde 122 3.53 119 122Lesotho 123 3.52 120 137Swaziland 124 3.52 121 135Tanzania 125 3.50 122 120Côte d’Ivoire 126 3.50 123 131Ethiopia 127 3.50 124 121Liberia 128 3.45 125 111Uganda 129 3.45 126 123Benin 130 3.45 127 119Zimbabwe 131 3.44 128 132Madagascar 132 3.42 129 130Pakistan 133 3.41 130 124Venezuela 134 3.35 131 126Mali 135 3.33 132 128Malawi 136 3.32 133 129Mozambique 137 3.30 134 138Timor-Leste 138 3.25 135 136Myanmar 139 3.23 n/a n/aBurkina Faso 140 3.21 136 133Mauritania 141 3.19 137 134Angola 142 3.15 n/a n/aHaiti 143 3.11 138 142Sierra Leone 144 3.01 139 143Yemen 145 2.98 140 140Burundi 146 2.92 141 144Guinea 147 2.91 142 141Chad 148 2.85 143 139

* This column shows the rank of each economy based on last year’s sample of 144 economies.

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19 The Global Competitiveness Report 2013–2014 | 27

1.1: The Global Competitiveness Index 2013–2014

above, six of them are among the top 10. In total, 10 are among the top 20, as follows: Switzerland (1st), Finland (3rd), Germany (4th), Sweden (6th), the Netherlands (8th), the United Kingdom (10th), Norway (11th), Denmark (15th), Austria (16th), and Belgium (17th). However, Europe is also a region with significant disparities in competitiveness, with several countries from the region significantly lower in the rankings (with Spain at 35th, Italy at 49th, Portugal at 51st, and Greece at 91st). As in previous years, North American countries feature among the most competitive economies worldwide, with the United States occupying the 5th position and Canada the 14th.

Norway rises by four places in the rankings to a remarkable 11th this year, with progress in a number of areas. Specifically, the country features a notable improvement in the uptake of ICTs, particularly increasing Internet bandwidth and greater penetration of mobile broadband. Similar to the other Nordic countries, Norway is further characterized by well-functioning and transparent public institutions; private institutions also get

admirable marks for ethics and accountability. Markets in the country are efficient, with labor and financial markets ranked 14th and 9th, respectively. Productivity is also boosted by a good uptake of new technologies, ranked an excellent 3rd overall for technological readiness, up 10 places in this area since last year. Moreover, Norway’s macroeconomic environment is ranked an impressive 2nd out of all countries (up from 3rd last year, and continuing an upward trend over the last several years), driven by windfall oil revenues combined with prudent fiscal management. On the other hand, Norway’s competitiveness would be further enhanced by continuing to upgrade its infrastructure (33rd), fostering greater goods market efficiency and competition (22nd), and further improving its environment for R&D.

Canada remains stable at 14th place. The country continues to benefit from highly efficient markets (with its goods, labor, and financial markets are ranked 17th, 7th, and 12th, respectively), well-functioning and transparent institutions (14th), and excellent infrastructure (12th). Canada is also successfully nurturing its human

Box 4: The European Union’s Regional Competitiveness Index (cont’d.)

and residents to live and work.” This definition focuses on the close link between competitiveness and prosperity, characterizing competitive regions not only in output-related terms but also by overall socioeconomic performance and potential.

The RCI was first published in 2010 and included 69 indicators. It builds on the methodology developed by the World Economic Forum for the Global Competitiveness Index, and has proved to be a robust way to summarize many different indicators in one index. The index covers a wide range of issues, and includes innovation, quality of institutions, availability and usage of infrastructure (comprising digital networks), and measures of health and human capital. It has been used in many regions in the European Union and has sparked similar initiatives in Australia and South Africa.

The RCI 2013 is the second edition of the index and takes in updated and improved data together with method refinements. Croatia has been included in the 2013 edition, as it joined the European Union on July 1, 2013. The RCI 2013 is based on a set of 73 indicators and follows the same framework and structure of the 2010 edition. Data for all the indicators mainly span the period between 2009 and 2011. As for the previous version, the index is based on 11 pillars describing both inputs and outputs of territorial competitiveness. Pillars are grouped into three sets describing basic, efficiency, and innovative factors of competitiveness. The pillar groups are weighted differently according to the region’s development stage in terms of gross domestic product per capita.

The basic pillars represent the basic drivers of all economies. They include (1) Institutions, (2) Macroeconomic

Stability, (3) Infrastructure, (4) Health, and (5) Basic Education. These pillars are most important for less-developed regions.

The efficiency pillars are (6) Higher Education and Lifelong Learning, (7) Labor Market Efficiency, and (8) Market Size.

The innovation pillars, which are particularly important for the most advanced regional economies, include (9) Technological Readiness, (10) Business Sophistication, and (11) Innovation. This group plays a more important role for intermediate and especially for highly developed regions.

Overall, the RCI framework is designed to capture short- as well as long-term capabilities of the regions. Further information about the RCI 2013 is available at www.easu.jrc.ec.europa.eu or www.ec.europa.eu/regional_policy.

Notes

1 The RCI uses NUTS 2 regions, which are the basic territorial units for the application of regional policies. They are defined by the Commission regulation on nomenclature of territorial units for statistics (from the French Nomenclature des Unités Territoriales Statistiques, or NUTS). NUTS level 2 refers to regions with an average population size between 800,000 and 3 million.

2 The RCI does not include northern Italy, Wallonia, or eastern France among the most competitive EU regions, which were included in the core-periphery analyses.

3 To ensure that the regional competitiveness index does not break up functional economic areas, the capital regions of Belgium, the Czech Republic, Germany, the Netherlands, Austria, and the United Kingdom were combined with one or more of the neighboring regions to better capture the functional metropolitan region. This ensures a good match between the workplace-based indicators such as research and development and the residence-based indicators such as educational attainment.

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Gross Expenditure on R&D Relative to GDP 2012

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2/27/2014 Eurostat - Tables, Graphs and Maps Interface (TGM) map print preview

http://epp.eurostat.ec.europa.eu/tgm/printMap.do?tab=map&plugin=1&language=en&pcode=t2020_20&printPreview=true 1/1

Source  of  Data  EurostatCopyright  of  administrative  boundaries:  ©EuroGeographics,  commercial  re-­distribution  is  not  permittedLast  update:  24.02.2014Date  of  extraction:  27  Feb  2014  19:19:00  CETHyperlink  to  the  map:  http://epp.eurostat.ec.europa.eu/tgm/mapToolClosed.do?tab=map&init=1&plugin=1&language=en&pcode=t2020_20&toolbox=typesDisclaimer:  This  map  has  been  created  automatically  by  Eurostat  software  according  to  external  user  specifications  for  whichEurostat  is  not  responsible.  Footnotes  have  not  been  included.General  Disclaimer  of  the  EC  website:  http://ec.europa.eu/geninfo/legal_notices_en.htmShort  Description:  The  indicator  provided  is  GERD  (Gross  domestic  expenditure  on  R&D)  as  a  percentage  of  GDP.  "Research  andexperimental  development  (R&D)  comprise  creative  work  undertaken  on  a  systematic  basis  in  order  to  increase  the  stock  ofknowledge,  including  knowledge  of  man,  culture  and  society  and  the  use  of  this  stock  of  knowledge  to  devise  new  applications"(Frascati  Manual,  2002  edition,  §  63  ).  (i)  More  information  on  national  targets  can  be  found  hereCode:  t2020_20

Private Universities as an Export Component? The Abundance of Greek Human Capital Abroad

•  John Ioannides (Stanford University, 2014):

-  About 3% of highly cited scientists in the world are Greek, while the population of Greece (of Greeks) is only 0.15% (0.20%) of the world population.

-  85% of the highly cited Greek scientists live and work outside Greece.

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Lack of Balance between Population Share of Scientists/ Engineers and R&D Share of GDP in 2011

Source: William H. Press, Presidential Address, Science 15.11.13, reprinted from Battelle Memorial Institute and R&D Magazine

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Area of circle is proportional to total R&D Spending

Target: Get Greek R&D Spending to 1.5% of GDP by 2020 Proposal of National Council on Research and Technology

(ESET 2010-2013)

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•  Substantial but gradual rise in expenditures

•  Allocated to fields depending on evidence of research activity (Aristeia I)

•  Backed by assessment regarding promising research areas by the relevant TES (Field Scientific Council)

•  A few weeks ago: Announcement that all research programs will be cut by a fixed percentage!

Conclusions

•  The adjustment program gave enormous priority to deficits, lowering wages and salaries, and raising taxes and very little to reforms that would create good jobs with attractive terms and boost productive potential

•  This has led to demoralization and low consumer and investor confidence

•  There are substantial margins for reform, allowing big improvements in limited time

•  Danger that reforms to create productive potential and generate sustainability will not be made! -  The unpopular program is abandoned once its short-term fiscal targets are achieved without

reforms being implemented

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