Economics
Chart of the week
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CHART OF THE WEEK . . . CHART OF THE WEEK . . . CHART OF THE WEEK . . . CHART OF THE WEEK
13 February 2015
Eurozone: reforms pay off
Greece leads the OECD reform ranking
0.0
0.1
Greece
Portugal
Ireland
Spain
Slovakia
Austria
Denmark
Italy
UK
France
EU
Finland
Canada
Japan
Sweden
Netherlands
Germany
USA
Belgium
0.2
0.3
0.4
0.5
0.6
0.7
Overall reform
responsiveness over the
period 2007-14
OECD Going for Growth reform responsiveness score, average 2007-2014. Source: OECD Going for Growth 2015
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•
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Structural reforms can be measured: It is tricky to compare structural reform efforts across countries. The OECD
makes an attempt. Every year, its economists identify areas of reform for member states, including labour market,
product market or education reforms. At the end of the year, they assess whether significant progress has been made
and assign a score of between 0 and 1. The score does not measure how big the problems are, but whether countries
tackle them.
The former crisis countries on the Eurozone periphery are the western world’s reform leaders: As the global
financial crisis and the euro crisis have revealed, Greece, Spain, Portugal and Ireland needed a massive structural
shake-up. Under pressure from, and with the help of, the Eurozone and international partners they delivered. The
four countries top the OECD’s reform ranking in 2007-2014. As we find in our Euro Plus Monitor 2014, they also top
the rankings in fiscal and external adjustment as well as labour cost adjustment.
Reforming is tough but it pays off: Changing the structure of an economy causes frictions, in particular if global
growth is weak simultaneously. All former crisis countries went through serious adjustment recessions, which only
ended in 2013 or 2014. Unemployment soared and all four needed financial assistance from the Eurozone. Politicians
are often not long enough in office to enjoy the benefits in elections. But the reforms do pay off. In 2014, the
Eurozone’s former crisis countries were among the region’s growth leaders. Having seen their economies expand by
0.7% and 0.5% qoq in Q4 2014 respectively, Spain and Portugal in particular enter 2015 with plenty of momentum.
Meanwhile France and Italy, which lag far behind the star performers in reforms, also lag behind in the growth
rankings. But things may be about to improve, at least in Italy. Under Prime Minister Renzi, Italy adopted a serious
labour market reform in December, which should show up in forthcoming reform rankings and in Italy’s economic
performance. In contrast, Germany and the Netherlands may be low in the reform rankings, but they can allow
themselves some slack as they currently simply do not need as many reforms either.
Samaras got the basics right: Thanks to the former government’s valiant efforts since 2012, Greece is leading the
world reform ranking. But the work is not finished. The OECD currently recommends that Greece fully implements
the reforms of 2010-2014. In addition, it recommends improved active labour market policies and a more efficient
social safety net, as well as product market and tax collection reforms and public sector streamlining.
Inviting the OECD to help Greece is one good idea of Greece’s new government. But contrary to what Mr Varoufakis
would have his voters believe not 70% of the reforms since 2010 were good, but rather 140% should have been done.
Let us hope that the Tsipras/Varoufakis negotiation blunders do not undermine the good ideas they have.
Holger Schmieding
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Christian Schulz
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Robert Wood
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Economics
Chart of the week
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