Evaluating Structural Reforms in Greece During the Crisis: Policy Design and Political Economy Considerations

In recent years successive Greek governments have implemented a wide array of structural reforms, both in the public sector and the private economy, as part of the policy conditionality of the bailout agreements. Despite the ambition of the reforms detailed in the Memoranda of Understanding (MoUs), or the proclamations of Greek officials, the implementation record is mixed and the actual impact of the reforms on either the operation of the state or the economy is hard to gauge accurately. The aim of the proposed paper is to offer an evaluation of the reform process and its basic outcomes by examining the design of the structural reform programme and the impact of political economy factors. Structural reforms are complex and technically challenging policy projects. Even assuming benign policy makers seeking only to maximize social welfare, issues of policy design play a critical role in getting structural reforms right, particularly when these are pursued in times of crisis. On the one hand, crises have the potential to act as catalysts for reforms, but on the other hand, crises could complicate things due to the need for stabilization policies, such as fiscal consolidation, which can often work at cross-purposes with structural reforms. Past experience has shown that factors such the initial conditions on the ground, the balance between structural reforms and fiscal consolidation and the timing and scope of reforms, may prove crucial for the success or failure of reforms. Beyond policy design issues, political economy considerations (defined as -typically ex ante- considerations regarding the distribution of costs and benefits of structural reforms) can also be very important. The distributional consequences of reforms and the accompanying political economy dynamics may explain a fundamental puzzle in the debate over reforms: given that they are supposed to increase efficiency and ultimately social welfare, why there is often so much opposition to them? The proposed paper will discuss the empirics of structural reforms in Greece through the twin perspective of policy design and political economy. A two-pronged empirical research strategy will be employed to produce the empirical evidence; on the one hand, there will be a descriptive quantitative analysis, based on the data of the MONA (Monitoring of Fund Arrangements) database of the IMF, which compiles information about the implemented bailout programmes and the progress of reforms. This analysis, will be combined with a presentation and discussion of the results of elite interviews with high ranking public officials that were involved in a number of high profile reforms in both the public sector and the economy. Anecdotal evidence on the implementation and actual outcome (impact) of particular reforms will strengthen further the validity of the findings.