exporter in the sample below, (second only to Italy in the original sample). Ireland resembles Germany closely, with 39% of its exports in group 1 and only 1.3% in group 6. By contrast, Greece has 3.8% in group 1 and a whopping 33% in group 6. Spain and Portugal are in‐between, Spain having substantially more exports that are complex than Portugal. The complexity of Greece’s exports lags behind that of China.<sup>19</sup>

**Table 2: Share in a Country’s Total Exports by Complexity of Products**

||No. of<br>|Complexity|||Share|in coun|try's exp|orts|||
|---|---|---|---|---|---|---|---|---|---|---|
||roucs||||||||||
||||o|o|||||||
||<br>(RCA>=1)|Rank|<br>10|<br>100|1|2|3|4|5|6|
|Greece|1,060|52|0.01|0.39|3.82|14.78|12.5|17.21|18.6|33.09|
|Ireland|421|12|0.13|2.28|39.06|26.27|15.6|13.79|3.97|1.32|
|Portugal|1,188|53|0.02|0.42|15.32|9.84|22.09|15.57|15.53|21.66|
|Spain|1,745|28|0.02|1.89|24.18|20.8|16.53|12.77|14.46|11.25|
|China|1,962|51|0.02|0.53|5.71|13.9|20.75|19.52|15.59|24.53|
|Germany|2,113|2|0.19|7.9|39.62|24.5|16.01|10.85|5.61|3.4|
|Belgium|1,470|10|0.23|3.84|27.81|20.3|15.55|11.26|12.12|12.96|

i) Figures are based on the averages of export values for 2001‐2007. ii) Top 10 and Top 100 correspond to the most complex products; products are divided into six groups, 1 is the most complex product group. An RCA >1 implies that the product accounts for a larger share of a given country’s export basket than it does in the world export basket.

Source: Felipe and Kumar (2011) based on Abdon et al (2010) using a measure of complexity based on Hidalgo and Hausmann (2009).

Structurally different, at different levels of GDP per capita, yet GIPS demonstrate decisively the primacy of debt, _whether public or private_ in effecting economic /financial crises. Large increases in either one are cause for concern, no matter how rich or structurally flexible is the country.

# **_Lesson 2. Signaling policy commitment at the national and supranational levels has value in financial markets._**

_<u>In the recovery from crisis, signaling commitment of both national and supranational parties to a credible debt strategy is essential in stabilizing market risk perceptions. It is not enough to embark on reforms, but to present a coherent package. Such a package will involve measures to reduce the debt burden directly, but also credible policy measures to support growth recovery.</u>_ The adoption of _fiscal_ consolidation programs endorsed by the ECB, IMF and EC did not reduce risk perceptions at the time that the programs were adopted (Figure 1). The delayed response of markets may be explained by the following: (a) fiscal consolidation (and structural reforms) still had to be implemented; (b) markets were not convinced that monetary conditions would be conducive to growth recovery until 2012; (c) Eurozone growth was weak making it harder for GIPS to improve debt ratios; and (d) perceptions for different market participants (e.g. rating agencies versus others) were mutually reinforcing, enhancing volatility. The ECB announcement of 2012, signaling its commitment to stand behind the Eurozone members, and the implementation of fiscal and structural reforms served to reduce spreads. Yet, by the third quarter of 2015, again Greek _CDS spreads_ had risen to levels not seen before as a result of continued uncertainty regarding its future in the Eurozone. Moreover, lack of transparency regarding Greek fiscal outcomes, intermittent and widely politicized trouble with creditors, and some discontinuity in the pace of reforms caused shifts in sentiment regarding government credibility and

> 19 Yet, in terms of costs, labor compensation in euros was higher in Greece than in Portugal, and 78% of Ireland’s. Minimum wage regulation as well as taxes affected labor compensation. Though Greece exported the simplest of products, by 2008, its minimum wage in euros was higher than that of either Spain or Portugal.

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