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Multi-level Finance and the Euro Crisis

Multi-level Finance and the Euro Crisis

Causes and Effects

Studies in Fiscal Federalism and State-local Finance series

Edited by Ehtisham Ahmad, Massimo Bordignon and Giorgio Brosio

Representing a unique contribution to the analysis and discussion of the unfolding Eurozone crisis in terms of the relationship between central and local government, this book addresses a number of important fiscal and political economy questions. To what extent have local and regional governments contributed to the crisis? To what degree have subnational services and investments borne the brunt of the adjustments? How have multi-level fissures affected tensions between different levels of government from the supranational to the local? This volume covers these and many other critical issues that have been largely ignored despite their relevance.

Chapter 6: Economics and politics of local Greek government

Georgios Chortareas and Vassileios E. Logothetis

Subjects: economics and finance, public finance


The effects of the 2008 global recession were delayed in spreading to Greece, and in 2010 the country still displayed a higher growth rate compared to the Eurozone. The crisis in Greece reflected a number of macroeconomic and institutional weaknesses that had built up over the preceding decades. These weaknesses included structural deficiencies and lack of competitiveness, which were reflected in both the budget and current account deficits. The country for a long period had experienced a high growth rate along with falling competitiveness. Institutional weaknesses included a lack of clarity about local and municipal functions – with contracting arrangements for local services implying that wages are paid by the central budget, and liabilities parked in enterprises and off-budget entities. As we discuss below, this led to a lack of clarity in information flows, as well as diffused accountability. It also makes it extremely hard to adhere to adjustment targets, and also to evade rigid conditionality.

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