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An inconvenient truth: Greek economy is uncompetitive

26 Jan 2015

Syriza’s sums don’t add up says London Business School strategy expert


Michael G Jacobides

Syriza’s promises of state largesse, including guaranteed income and tax reduction for the poor, struck a chord with an electorate exhausted by six years of recession and unemployment. But, while it hasn't deterred voters, a strategy expert from London Business School says the party’s sums fail to add up.

Michael Jacobides, Sir Donald Gordon Associate Professor of Strategy & Entrepreneurship, London Business School, says: “The fact that the sums don’t really add up has not mattered much to voters, who seem to have bought Syriza’s argument that everything would be rosy if only austerity were curtailed and Germans softened their stance.

“Syriza, like much of the international press, misses the point by claiming that austerity and Germany are holding Greece back. The problem isn’t only that excessive short-term contraction, imposed by Greece’s lenders to achieve significant surpluses to pay off the debt, has hampered growth prospects.

“The problem is that the Greek economy just isn’t competitive: European unification and the Euro helped countries such as Germany grow by selling exports to Greece and recycling their domestic savings into Greek credit through the European Banking System.”

A further problem Dr Jacobides cites is that a bloated, extremely inefficient and rent-seeking Greek state cemented a restrictive market structure, protective of incumbents and special interests. On top of these structural issues, political uncertainty forestalled the investment that was sorely needed to address a long period of stagnation.

“Syriza”, he told Huffington Post has “breezed past these concerns, not least because it wants to grow the public sector. It is far easier to discuss debt dynamics, focus on austerity and demand greater social justice.” But at the heart of the issue in Greece he believes is the need to improve an inefficient, interventionist and sometimes corrupt state. So far, Syriza has shown remarkably little appetite for reform.

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Michael Jacobides

Sir Donald Gordon Associate Professor of Entrepreneurship and Innovation; Associate Professor of Strategy and Entrepreneurship

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