The Path Ahead for Greece
How can Greece use its current fiscal crisis as an opportunity to reinvent and improve itself?
- What is required of us now is to mobilize our strengths to forge ahead and to deepen the reforms.
- Now is the time to bolster our economic diplomacy. Greece has to turn the tables and redefine the problem.
- The Greek crisis, as well as the wider one in Europe, is not entirely a problem of liquidity. It is a problem of solvency.
It was a make-or-break vote in Athens on June 29, and the whole world was watching and waiting to see whether the government’s latest austerity package would pass through parliament.
In the end, we made it. The sigh of relief was almost audible.
The stakes were too high for the vote to go any other way. The austerity plans are the key to unlocking some €12 billion of additional funding from the European Union and the International Monetary Fund.
We succeeded in averting a domestic, European and international financial calamity. Greece’s debt woes, at least for now, will not mutate into a full-blown crisis.
It’s now up to us to deliver and lift the country out of the worst recession in modern Greek history. It won’t be easy.
As a mood of optimism begins to spread again, we need to convince the global financial markets we are serious about implementing the new measures — a painful mix of spending cuts, tax hikes and wage reductions worth €28 billion.
There’s really no other choice. It’s our only way out. It’s the only way to redeem ourselves after decades of mismanagement and broken promises. It’s the only way for Greece to win back the trust of our partners in the eurozone.
Reflecting the Greek reality
Now is the time to bolster our economic diplomacy. Greece has to turn the tables and redefine the problem. The current travails are not just about rescuing Greece, but are an opportunity to restructure the country’s economy and stimulate the production base in all 17 eurozone countries.
The June 29 vote was a key victory. The government gained significant momentum. The tough job, however, is not over yet.
The hard work is just beginning.
It is positive to have the support of other European Union countries and our international lenders. They understand now that our problem is also their problem. They understand that this crisis is much larger than Greece.
This crisis has brought to light the shortfalls of the European Union economic support system.
If the vote on July 29 had gone the other way, the situation would have intensified. The problems would have spread, starting from Greece and then spreading to the rest of Europe. Countries would have struggled with continuous downgrades by international rating agencies. The sovereign bond spreads would have widened.
Let’s not think about the unthinkable: Greece’s default. Such a scenario would be catastrophic. It would not just be a bad turn of events, it would be a living nightmare.
And I am being very honest when I say this. I know firsthand what it would be like. I have watched countries default back when I worked with Latin American countries in the 1990s and early 2000s while at the World Bank.
This is why all of us must pull together and rule out the remote chance of Greece or any eurozone country defaulting.
To avoid it, we must make the most of our negotiating power and embark on high-level economic diplomacy. We need to explain that the Greek crisis, as well as the wider one in Europe, is not entirely a problem of liquidity. Nor is it simply a problem of debt management.
It is a problem of solvency — which in Greece stems from poor management of the civil service, bureaucracy and overregulation. All this has led to a drastic loss in productivity.
But first things first. Greece has to solve some heavy-duty regulatory problems for the new measures to have lasting and positive results. These are problems no one has addressed for decades thanks to the excess liquidity (coming either from European Union accounts or from low-interest loans).
These include a heavy bureaucracy, which results in a lack of transparency and takes the form of inefficient law enforcement, as well as insecure property rights and a complex and convoluted administrative process. This ultimately serves to decrease predictability and discourage foreign direct investment.
Much of this is being tackled by the new law. Thankfully, due to the crisis, these problems are now out in the open — and they will not be swept back under the carpet.
This is why we must direct our economic strategy toward regulatory and institutional reforms — a single, simplified tax system, simplification of the judicial system and the safeguarding of property rights, as well as the overall improvement of the average Greek’s daily life.
It’s going to be an uphill climb. Though the path we are on is very difficult, we must persevere. What is required of us now is to mobilize our strengths to forge ahead and to deepen the reforms. Let’s stay driven and determined to keep going.