Greece: What Lies Ahead?
To protect the weak, Syriza has to extend a hand to the powerful, especially foreign investors.
This is the first stage of a long divorce. The ECB will determine its pace. If Greek banks are cut off from emergency liquidity assistance, then the country’s exit from the Eurozone starts one minute afterwards. (See TG’s recent coverage of Greece here).
From here on out, Greece regains its macroeconomic policy tools. Exit from the euro, whenever it comes, will not be easy.
I have always maintained that Greece’s choice was, either 40 years of dull excruciating pain or five to seven years of acute misery. The Syriza government has to explain to the citizens the problems ahead — but also to show that the freedom they have won can create conditions for austerity with a human face.
The currency will depreciate. Inflation will follow. Syriza has to protect the vulnerable. Since it will not be able to borrow for a while, it has to attract capital willing to take a chance on Greece.
The only way out
The answer is to cut the corporate tax, privatize what it can and encourage exports, which its depreciated currency will facilitate. To protect the weak, Syriza has to extend a hand to the powerful, especially foreign investors.
It has to run a tight fiscal policy and a loose monetary policy. Greece can pursue structural reforms, but at its own pace, not that of its masters. With fortune and a fair wind, the arduous way forward can start here.
Editor’s note: Longer version appeared under HL “The Byron beckons” as part of the OMFIF Commentary, 6 July 2015.