Evaluating the Internal Devaluation Policies Implemented in Greece—Analytical Insights and Empirical Evidence

While evaluating the Greek fiscal adjustment programs back in 2019, their coordinator, Paul Thomsen, spoke of “elastic wages against inelastic prices”. It is important to investigate why this is so. Our explanation stems from the debate over the influence of the relative Greece/Eurozone unit labor costs, adjusted with the ratio of non-tradable to tradable goods on the respective relative Producer Price Indexes. It is a line of thought that draws from the insights of both mainstream and heterodox economists and yields strong empirical results. These findings indicate that the production structure of the Greek economy plays an important part in the effectiveness of economic policy. It is an important dimension of forward-looking policy evaluation for Greece and the feasibility of the European Integration project.