Causes and Effects
Studies in Fiscal Federalism and State-local Finance series
Edited by Ehtisham Ahmad, Massimo Bordignon and Giorgio Brosio
Chapter 6: Economics and politics of local Greek government
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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