Whatever The Referendum Outcome, Greece Has No Recovery Strategy

image_pdfimage_print

WASHINGTON – The upcoming Greek referendum is mostly a reflection of political and policy confusion in a sorry country that chose Alexis Tsipras, an amateurish, leftwing populist, as its prime minister.

Confusion

Whichever side will win –those who do not want to accept the EU package or those who are willing to swallow the bitter pill by saying “yes”– it is not at all clear that after the vote there will be a clear path ahead for Greece.

Greece is bankrupt

Here is the thing. Greece is bankrupt. Its weak and unproductive economy cannot possibly generate enough wealth so that people can carry on with some hope of future standard of living improvement, while at the same having a reasonable plan to repay the country’s total outstanding debt. Simply stated, there is no way that Greece can pay all its debts exceeding now 300 billion Euro. Impossible.

So, how can they fix this? First of all they should fire all the incompetent and ideologically biased charlatans who are now supposedly running the government.  Greece’s economic, fiscal and financial collapse is a serious problem that requires serious people in charge. Ultra leftist ideologues like Tsipras are colorful, and they make interesting headlines. But they are hopeless policy-makers.

A game plan

That said, at least in principle, it is very easy to conceive the basic components of a “turnaround” plan for Greece. First of all, one needs to understand the real economic potential of this perennially mismanaged country. It is foolish for creditors to keep demanding large payments from a society that cannot possibly generate them.

So, here is the trick. One needs to understand: 1) how much wealth the Greeks can produce, 2) how much must be retained at home so that the Greek people will have a modicum of prosperity that will allow them to regain a sense of purpose, 3) how much realistically the Greeks can pay back to their creditors, 4) and how much of the current outstanding debt will have to be forgiven, simply because it is impossible for Greece to repay all of it.

At the same time, wise policy-makers (let’s assume that they exist) will enact pro-growth reforms that over time will improve the country’s economic competitiveness. Much can be done in education, laws that will attract fresh foreign investments, fiscal reform, pension reform, labor markets reform.

Simple enough, in theory

As I said, at least in theory, in the end all this is all quite simple. Realistic, competent people on both sides (European creditors and Greek debtors) will strike a good balance between how much wealth the Greeks can produce, how much they need to keep in order to stay afloat and invest in the future, and how much needs to be set aside to satisfy its creditors.

Most likely the same wise people sitting at the table will conclude that realistically Greece cannot possibly repay all its debt. Well, then they must wisely decide what is possible, and forgive the rest.

Realistic pragmatists in charge?

Anyway, this is what should be done. But this assumes realistic pragmatists in charge. And this is not the case. Not even remotely so.

In the past, Europe has insisted on imposing self-defeating draconian austerity on a Greek government and society used to irresponsible profligacy. Too much austerity is recessionary. It makes it harder to kick-start a recovery.

The Greeks, on their part up to now, years after the crisis had exploded in 2009, have been unable to produce any credible economic recovery plan that includes savings, less public spending, and more investments in wealth-generating, productive sectors.

Still no plan

If this combination of incompetence, stupidity and ideological bias does not go away, then it will be the same scenario next week or next year, whatever the outcome of this referendum. Make no mistake: Greece is and will remain bankrupt. Worse yet, Greece has no credible plan, and with this hopeless Tsipras leadership most likely will continue to have no plan.

And this means that there will be no workable strategy that will be able to give its citizens any realistic expectation that a long period of belt-tightening and sacrifices will eventually yield a healthy economy and a modicum of prosperity.

 

, , , ,

Leave a Reply

Your email address will not be published. Required fields are marked *