The ECB, structural reforms and a long run misconception (graph)
The most famous Keynes quote is no doubt:
“But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again.”.
But ECB economists clearly do not grasp the wisdom of these words. I was reading the recent ECB document: “Progress with structural reforms across the Euro Area and their possible impacts“. I’ll write more about this. For now: after seven years of continuous decline and/or deflation of the Greek economy and an about 25% contraction the ECB economists dare to state (based upon a 2013 IMF report):
“A number of structural reforms were implemented in Greece. The IMF estimates that policies which close roughly half the gap in product and labour markets with the rest of the euro area – which seems to be what Greece achieved … according to changes in the OECD’s product market regulation (PMR) and employment protection legislation (EPL) indicators – could raise real GDP by about 4% after five years and by 10% in the long run.”
About these reforms: the article shows that of all Eurozone countries Finland scores about the highest when we look at ‘product market regulation’ and ’employment protection legislation’ (‘high’ meaning: approved by neoclassical economists). That’s the template for Greece! But it seems that for Finland, too, the tempestuous season still hasn’t ended…. (graph).
I do think – but in this case my opinion is humble, as I did not talk with Greek business owners – that Greece should make doing business and more reforms and changes are welcome, like finally completing the cadastral survey. But this alone won’t solve the problems. Not anytime soon. And not in the long run, either.