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Targeted Debt Relief: Humanitarian Action Plan for Greece

A Social Solidarity Program focused on Greece’s poor is a deal Germany may suggest.

July 9, 2015

A Social Solidarity Program focused on Greece’s poor is a deal Germany may suggest.

The Greek referendum is over. It remains to be seen whether the vote was cathartic or calamitous. In a last-ditch effort, conversations have resumed between all the parties — the Greek government on the one hand and the European Union, the European Central Bank and the IMF on the other.

It is unclear whether these discussions that have frustrated all parties up to now will be any less acrimonious (a “dialogue of the deaf” as the French put it).

What is clear is that we are dealing with a married couple on the brink of divorce. As in this case, there really is no longer any need for the same players rehashing the same script.

Since the economic starting point – a terrible economic situation – has not changed, even under the most optimistic assumptions, and regardless of whether Greece is inside the euro or out, we can expect several years of continued belt-tightening, whether by policy or not. Anything else is utopian thinking.

What would a marriage counselor have to say?

A marriage counselor would advise to change the cast of characters and to avoid being fixated only on macroeconomic negotiations. The most practical, constructive and, yes, humanitarian thing to do is to look at where the pain is most acute. Analyze that — and then try to do something about that.

So, who is suffering the most? There is a straightforward answer to that: the sick, the old, the poor and their children.

So that’s the field of battle – and relief – where the European institutions that deal with food security, health and social programs should be brought onto the stage. Also bring in international NGOs.

Then, as a next step, and together with the Greek government and civil society, develop intelligent well-targeted collaborative programs. Repair Greece’s social safety net. Perhaps bring in the World Bank, which has been sitting on the sidelines so far.

Money for people, not creditors or domestic elites

A Social Solidarity Program to secure Greece’s future by assisting its weak would of course cost money. But it would not be all that much, especially when compared to continuing to pump in funds that go straight to foreign creditors.

Providing cash assistance, food and medication to young children and old persons is cheap when compared to fixing the books of creditor banks and/or governments.

Since the Latin American debt crises of the 1980s, we have learned a lot about running targeted social programs. And it is something that the world has had very good experiences with in recent years.

Consider, for example, the Bolsa Familia program in Brazil. Whatever is broken in Brazil – and there is a lot of it both in the economy and in the public sector – these cash programs are a great and very positive exception. Recent biometric advances have made it possible to target programs in countries such as Indonesia.

Sure, there will be leakage, but this might very well be the most important step to be taken to save the Greek patient.

End the slush funds

Note what such a program does not attempt to achieve. It does not provide Greece with any funds to keep financing its bloated public sector.

The only way for the country – especially its media, political and business elites – to come to terms with reality is to put the Greek government into a position where it has to finance the ways it has gone about organizing its society out of its own tax revenues.

Nothing in the world focuses the mind as much on achieving long overdue tasks, such as establishing an effective system of tax collection, than being cut off from the rather steady flow of funds from abroad.

Whether these came initially in the form of EU infrastructure funds, which were subsequently abused in various fashions, or later in the form of funds via sovereign bonds (issued by – in retrospect – very shortsighted investment banks and which ended up being used for domestic consumption purposes), or of late via bailout funds, including the ECB’s ELA (emergency liquidity assistance) flows, all of that is a truly unsustainable strategy.

True solidarity from Europe

On the other hand, for the European partners and creditor countries, changing the rhetoric from “adjustment only” to solidarity for the weak would lift spirits. Over time, it might even “unblock” the stalled macroeconomic negotiations.

For the rest of the eurozone, this is really a straightforward proposition. Nobody questions the need for humanitarian action and appropriate financing.

It would be much better to develop a solid plan for that intervention than to keep offering them in a chaotic, haphazard manner.

The harsh truth for Greece’s elites, however, will be that the European partners will make very sure that those elites are no longer in a position to siphon off the funds that are clearly intended for the weak and the poor.

That, in addition to never really paying their own fair share of taxes, is what Greek elites have “excelled” at in the past. A country that wants to have a serious shot and a sustainable future must do away with such shenanigans.

Indeed, such activities are unbefitting a democracy, whether it is one that labels itself as the “world’s oldest” or not.

And here then is my prediction: A targeted relief fund of this kind, designed to support the weak and the poor, is very much a plan that the Germans themselves may be offering up in the councils of the eurozone and the EU. It would make any macroeconomic and debt relief plan politically that much more acceptable.

Stay tuned whether my forecast bears out. Let us all hope so.

Takeaways

A Social Solidarity Program will focus on Greece’s poor people -- not the domestic elites.

A Social Solidarity Program does not provide Greece funds to finance its bloated public sector.

The Greek government has to learn to finance its public sector out of its own tax revenues.

The Germans may offer a Social Solidarity Program focused on Greece’s poor in the councils of EU.