Perhaps it has become clearer now, after the crisis in Greece’s debt has become a headline in all the news media, that Greece never graduated from the group of emerging economies. Nevertheless, Greece was treated as a country belonging to the group of developed countries for nearly a decade, contributing to the developing economic woes throughout this period.
First let us start with the definition of emerging markets, and then it may become clearer why confusion about Greece’s quality may have occurred. And, yes now it is clear. There is no such definition!
Different organizations use different criteria and this results to grouping the countries in different ways. Not only, though, different institutions categorize differently the same countries, but also within the same institution’s reports the same country may appear to belong in different categories. This is shown very eloquently in Kvint’s article in which he shows the confusion that exists between the classification of the emerging and the developing economies. There is, however, one thing that different sources seem to agree upon and this is the names of the different classes, which are: developed economies, emerging, developing, and under-developed economies.
Greece on the other hand is an example of an emerging country that was mistakenly taken as a developed one. By entering in the club of the Euro area countries but also during the 1990s still in the process of entering the union, it received the benefits of the monetary union like decreasing interest rates. At the time of the entrance in the monetary union Greece’s interest rates collapsed to the rates Germany was paying at 2% allowing the imprudent Greeks to borrow and spend beyond their means.
Partly, the misconception was that Greece will converge to the other countries, and especially those of the north, but without strict monitoring from the monetary union this could never happen. This is exactly what distinguishes a developed from an emerging market: the discipline. The discipline to implement measures that will shield the economy for years to come and will not just focus on the ephemeral today. In my view, this also shows that Greece could also not be considered emerging as it was not and still is not decisively on the path of reforming and modernizing the economy. The tendency is towards the past, towards more nationalization and controls.
Still, the public as well as the authorities are very reluctant of taking new measures. Their movements are very slow and the people’s attitude is that in short time, when things improve, they will be able to go back to business as usual. The government also does not want to disturb the establishment as this is the establishment the governments of the last 30 years created. The corruption is sky high and there are a lot of people who benefit from it, including the policy makers. For this reason the government does not put effort to fight tax evasion but it raises the taxes for the middle and lower class. It does not want to break the monopolies and open the labor markets, but it wants to maintain the distorted benefits of the few privileged. All these things make real changes all the more difficult. If this is not an emerging or even a developing country’s behavior then what is?[1]
[1] For a definition of emerging markets look here and also here.
