GSO4SCHOOL Summer School 2020
Only Democracy can -on the one hand- ensure the liberation of productive forces, while -on the other hand- reduce social disparities, says Professor Panagiotis E. Petrakis, commenting on the Greek economy crisis. Democracy and Growth is the answer to the two extremes: external assistance under strict conditionality and exit from the eurozone.Panagiotis E. Petrakis is a Professor at the Department of Economics in the National University of Athens, Greece, where he holds the position of Director of the Sector of “Development and International Economics”.
– How would you describe the current crisis in a European level?
The European crisis has been transformed from a debt crisis to a crisis of growth, indicating a medium-term development of low growth rates and high unemployment, under the framework of a fragmented European economy. The European Economy, been for almost three centuries the global leader in economic welfare, cannot easily find which is the optimal road in our multipolar and highly competitive global economy. The sources of innovation have been limited, while the institutional framework creates obstacles for a fast adjustment in the necessary changes. However, under the pressure of the Great Recession of 2008, an integrating course for the European economy has taken place, spearheaded by the banking system and structural changes. This is a very long-run process that develops more as a product created from deadlocks, rather than from active motions going forward.
– What do you believe the consequences of the crisis will be for the future of Europe?
As we describe in our book “European Economics and Politics in the Midst of the Crisis”, the basic questions posed are: How likely is it for economic policy in the EU to change? How possible is it for higher inflation levels to become acceptable in Central European countries and, therefore, for a higher inflation rate to emerge throughout the Eurozone and the EU? Which are the repercussions of the deleveraging of the financial and nonfinancial sectors for the diminishing influences on the general level of demand to cease to be exerted, from both the limitation of financing conditions and the endurance of household consumption perspectives?
Ιn the coming years, a relatively positive answer to all three policy questions will emerge in Europe. Hence, we consider that there will be some moves toward the strengthening of demand in the Eurozone areas that are most affected by the recession; the central countries will tolerate a higher level of inflation, mainly driven by trade union demands for a fairer distribution of prosperity in Germany. Monetary loosening conditions will be preserved, which will suspend the exertion of restraining pressures from the deleveraging procedure. These developments will be triggered by a political change throughout the Eurozone and the EU, with a mix of political powers having the opportunity to govern, driving a similar change in economic policy. However, it is more likely that there will be no intense and positive developments up to 2015. In other words, it is reasonable to expect the rationality of economic protagonists. This means low-trajectory economic activity, consistent with weak economic data.
– In your book “The Two Temptations”, you talk about the extremes of anti-Systemicity and a Third Memorandum. What are their effects on Greek economy and why do these two extremes exist?
The whole point regards the progress of the Greek economy after the Second Memorandum: will there follow in a Third Memorandum (external assistance under strict conditionality), will there be chosen the path of anti-Systemicity (exit from the euro), or a gradual recovery path will be followed scoping in a better institutional functioning and on the implementation of economic policy programs by the elected bodies of the Greek state? Both anti-Systemicity and the Third Memorandum exercise great charm to their supporters. The two extremes have two features in common: The first one regards the ease of arguments raised for their support. The extreme of anti-Systemicity promises the hope of the unknown and first appeared. It includes an extremely popular and descriptive review of the prevailing economic situation, as well as a promise for a global change. The second one is that both extremes form an environment of emergency and regulatory enforcement.
– Do you think is there a middle path between these two extremes?
Between these two extremes there is a third road, that of Democracy and Growth. These two notions are closely related. Even the scientific research shows that the democratic organizing of the societies can have measurable and quantitative effects on economic growth.
On the one hand, this is due the encouraged investments caused by the valves of stability and continuity, the improved level of education and training, the introduction of reforms, the improved supply of public goods and the reduced social unrest. On the other hand, it is caused by the promotion of equality and the normalization of the expanded income inequalities that often accompany the democratization of social structures. Only Democracy can -on the one hand- ensure the liberation of productive forces, while -on the other hand- reduce social disparities. If our adulthood weaken centrifugal forces, we may become able to discuss about our future.
– In your book “Culture, Growth and Economic Policy” you emphasize that cultural background, and growth are interrelated. Could you briefly explain how this happens?
Cultural background and the values within are linked to, and interact with, economic systems in a complex manner. The term economic system refers to a network of human institutions and incentives shaping two key variables: growth rate and the distribution of income and wealth. These in turn influence economic result within a society. First, cultural background influences the quality and operation of political institutions (first-round effects). To follow, political institutions then shape economic institutions (second-round effects), which in turn create structures and action incentives for individuals. Dominant economic institutions ultimately shape the distribution of wealth and the extent of economic growth (third-round effects). Hence, cultural background first influences political institutions, which shape economic institutions through an on-going process of inter-influence.
– Is there any ideal cultural background favoring economic growth?
Different cultures coexist with economic institutions in a different manner. The different elements building cultural background may also have a determinative effect on the efficiency of economic institutions. Hence, the original question must be rephrased as follows: Is there an ideal cultural background, consistent with the present economic model in force, that applies each time and serves the specific social goals set by societies? Rephrasing the question provides a better description of the different social dimensions of the search for the ideal cultural background and the relationships between answers to this question. Intuitively, positive growth rates are indeed linked to certain basic cultural dimensions. Nevertheless, more research and study is needed to draw full conclusions about the elements building an ideal cultural background form growth.
*Professor Panagiotis E. Petrakis holds a degree and a PhD in Economics from the University of Athens. He is the author of numerous scholarly articles and monographs, and has extensive publications in recognized academic journals in a variety of areas including growth, economic development, entrepreneurship and banking. He has participated in many international committees and boards of financial experts. He is the author of a series of textbooks on investment valuation, banking, economic growth and entrepreneurship, taught at Greek universities. He has served in scientific committees in the private and the public sector.
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