This study analyses the likely pattern of structural adjustment of the Greek economy as economic integration proceeds, in light of the structural rigidities present in the commodity, capital and labour markets. The presence of such rigidities is attributed to `state corporatism', identified as the prevalent mode of economic and social organization characterized by an interlocking set of interests and entitlements across the state, financial institutions and traditional industry. The state-corporatist environment has condoned and fostered the development of dual markets and has given rise to allocative inefficiencies in their operations. Integration challenges the fundamentals of state corporatism through trade and capital market liberalization, through exposure of the official sector to external competition and through the requirements imposed by macroeconomic policy coordination. In the short run, unemployment is likely to rise as profitability in the traded-good sector declines. In the medium run, industrial restructuring and increased competition could produce efficiency gains. The policy challenge is to redress internal and external imbalances and at the same time implement a sustainable programme for development, where there is structural adjustment with growth.
