EconoMatters, Richter Scale

Has Tsipras Delivered?

The French bureaucracy’s fingerprints are all over Greece’s new proposal. Growth remains an afterthought.

Greek Prime Minister Alexis Tsipras (Credit: Blömke/Kosinsky/Tschöpe - Wikimedia Commons)

Takeaways


  • The Tsipras proposal is long on budgetary measures and short on making product markets flexible.
  • The future Greek growth can only come from continued injection of monies from abroad
  • If the EU accepts the program, Greece could charge later that growth was not stimulated.
  • The package is deeply rooted in the Greek and French traditions of believing it is always the public sector which leads.
  • Greece's much-needed recovery will be slower and uncertain for Greece and more costly for creditors.

What Tsipras presented is a “French-doctored” program. According to media reports, French technical experts helped the Greek government in preparing the program. (See TG’s recent coverage of Greece here)

While that sounds like an appropriate form of technical help, unfortunately the French mindset is all over the substance of what has now been submitted by Greece.

In the typical fashion of the French bureaucracy, the program is long on “fixing” the budgetary dimension measures — but falls far short on what Greece urgently needs in terms of making its labor and product markets more flexible.

To give two specific examples in this regard, the country still ranks very low when it comes to the ease of starting a business — which runs directly counter to the broader goal of stimulating growth.

And small businesses — which are very important in the Greek economy where many shops operate on a family basis — need to have more freedom from stifling government rules in order to succeed. In that specific context, hiring regulations should be eased and minimum-wage rules should be relaxed.

Overall, this would have the very desirable effect of improving employment, while also raising at least some tax revenues from the increased level of economic activity of these small businesses.

Buying into a trap

As a result, it is unclear where future Greek growth could come from, other than from the continued injection of more monies from the outside.

If the rest of the EU more or less accepts the program as presently presented, it falls into a trap. It opens the door to later Greek charges that the budget measures, as detailed in the current package, didn’t work, and that much-needed growth was not stimulated.

The logical consequence from both the Greek and the French position is that, at that point, even more money is needed from the rest of the EU.

Equally important is the fact that the current proposal changes very little of the cancerous set-up through which the political parties in Greece use the public sector for their own benefit, mainly by giving special deals to their own members and supporters.

In fact, indications are that Alexis Tsipras preserves a lot of discretion to continue doling out special favors — and hence greasing the wheels of Greek politics.

This system creates a treacherous form of mental dependence. The underlying assumption is that good things economically can only come from what in effect are shady political deals involving the public sector and public sector funds.

In nations with a well established and well run bureaucracy, that is at least a plausible suggestion — although that concept is increasingly running into a brick wall even there. France and, to a significant extent, even Germany are clear-cut examples of that.

Unfortunately, Greece does not have any such conditions when it comes to its bureaucracy.

As one telltale example, consider the fact that many EU “assistance” programs in the past have been used as slush funds at the local, regional and national levels.

Instead of delivering on their promised purpose, training people for the requirements of a modern workplace, they were (ab)used to grease the “system” as it has been operating not just for some decades, but ultimately centuries.

Too much faith in the public sector

All in all, despite some progress, the whole package is deeply rooted in the Greek — and the French — traditions. It reflects the profound conviction that it is ultimately always the public sector which is in the lead, while the private sector cannot really be unleashed for its own — and the people’s — good.

The net result of this is that the much-needed recovery will be slower, more uncertain and more painful for Greece — as well as more costly for creditors.

Tags: , , , ,

About Stephan Richter

Stephan Richter is the publisher and editor-in-chief of The Globalist. [Berlin/Germany]

Responses to “Has Tsipras Delivered?”

If you would like to comment, please visit our Facebook page.