The Two Faces of Janus: Institutions, Policy Regimes and Macroeconomic Performance in Greece

The clear change in policy regime in Greece around 1974 offers an opportunity to assess the extent to which economic performance depends on institutional underpinning. For 20 years up to 1974, Greece enjoyed rapid growth, high investment, and low inflation; during the next 20 years, growth and investment collapsed and inflation became high and persistent. A description is presented of the political background to such clear institutional change, and the nature of the 2 economic regimes: the first providing coordination and commitment mechanisms to sustain adequate returns for high investment, the 2nd failing to do so. The same change in political climate after 1974 raised public sector deficits and debt, fueling a trade deficit and monetary expansion. Entry to the EC did not cause the economic slowdown in Greece, but transfers from the EC did mask the underlying problem, delaying necessary adjustment. Recent attempts to reverse Greece's fortunes are in the right direction but as yet inadequate.