ATHENS – Sunday’s election in Greece will decide whether confrontation or negotiation will be used to change the terms of Greece’s refinancing agreement with the eurozone. Rather than helping Greece to overcome its crisis, the austerity policies pursued since May 2010 have plunged it into a deep recession that perpetuates fiscal deficits and aggravates financial uncertainty.
It is becoming increasingly clear that if Greece proceeds to unilateral action – whether by repealing unpopular austerity laws or renouncing the loan agreement itself – the eurozone will suspend disbursement of the loan. The government will find it impossible to fulfill basic obligations, such as paying salaries and pensions, and the country will formally default. International banks will cease to finance Greek enterprises, including imports, creating shortages of fuel, food, and medicines. As confidence that Greece will remain in the eurozone plummets, a run on deposits will cause the banking system – and, eventually, the real economy – to collapse.
The next step will be forced exit from the euro and reintroduction of the drachma, implying a dramatic drop in living standards, owing in part to immediate devaluation of the new currency and high inflation. Meanwhile, the benefits in terms of competitiveness will be very limited, owing to the country’s narrow export base, and will evaporate in a vicious circle of devaluations and rising interest rates.
Long-term stagnation and high unemployment are the likely result of confrontation with the eurozone, which leaves only the path of renegotiation. The new political balance emerging in Europe after the Socialists’ victory in France’s presidential election creates scope for changes in the terms of the loan agreement that would help to boost economic growth.
Opting for renegotiation assumes the victory of pro-euro political forces in Sunday’s elections. New Democracy, Pasok, and Democratic Left belong to this group, as opposed to Syriza and some smaller parties on the extreme right and left, which support a confrontational stance vis-à-vis the eurozone, eventually leading to the euro exit. If a pro-euro majority emerges on June 17, the new government’s main challenge will be to propose a new policy agenda, and then to negotiate a revised deal with the eurozone.
The key to growth is increased competitiveness through higher productivity and lower production costs. In the 1990’s, in the run-up to joining the eurozone, Greece achieved substantial gains on this front. With inflation falling sharply, real incomes increased. Fiscal deficits were reduced. Important structural reforms were implemented, particularly privatization. Investment accelerated, and major infrastructure projects were realized. High growth rates were achieved in conditions of stability.
Unfortunately, that effort ceased over the last decade. Selfish interests prevailed. Business groups attempted to capture specific markets. Public-sector trade unions fought for preserving privileges. Tax discipline was further weakened. The welfare state was transformed into a system of endemic waste. A gap emerged between the economy’s productive base, which remained stagnant, and Greeks’ expectations (and demands), which were rising fast.
The agreement with the eurozone attempted to close the gap in a clumsy and misguided way. Instead of focusing on structural reforms to liberate the economy’s productive forces, it relied on income cuts and tax increases. The incompetence of the governments that implemented the agreement exacerbates that defect by sidelining structural reforms and enacting only the terms concerning austerity.
The renegotiation should aim at changing the policy mix in the following directions:
- Extending the timetable of fiscal-deficit reduction in order to limit the depth of the recession.
- Avoiding any new cut in incomes or new taxes, with reduction in indirect taxation to start immediately.
- Social-protection measures, particularly for the unemployed.
- A European Marshall Plan, through grants from the European Union’s structural funds and loans from the European Investment Bank, in order to sustain economic activity and create new jobs.
Achieving these targets presupposes that Greece’s new government implements all of the structural changes agreed with the eurozone. Privatization, opening up closed markets and professions, promoting entrepreneurship, and eliminating public-sector waste should proceed at a fast pace over the next few months.
The European Marshall Plan would offer a unique opportunity to reorient growth policies. Greece should move beyond its traditional focus on sectors such as tourism, shipping, and construction, and search for new areas of comparative advantage in renewable energy, high-value-added services, and selected lines of manufacturing that benefit from the country’s research potential.
If Greece succeeds in fulfilling the requirements of a revised financing agreement with the eurozone, it may win the confidence bet by convincing financial markets that it is determined to achieve the targets.
Confidence will unlock the door to economic recovery. The fear of a return to the drachma will recede. Consumption levels will begin to recover. Deposit outflows will cease. The banking system will be reinforced. Investors will reevaluate opportunities for undertaking new initiatives. A virtuous circle may be set in motion, leading the country, eventually, to escape the crisis zone.
The outcome of Sunday’s election will determine which way Greece goes – and, also, of course, how the unfolding Greek drama affects the eurozone’s future.
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Glenn Gomes
The Greek economy needs to withdraw from the Eurozone and reintroduce the drachma. The program for development would be similar to what Poland accomplished in 1989 when it became independent from communist rule.
Main points of the plan were as follows:
Act on Financial Economy Within State-owned Companies, which allowed for state-owned businesses to declare bankruptcy and ended the fiction by which companies were able to exist even if their effectiveness and accountability was close to none.
Act on Banking Law, which forbade financing the state budget deficit by the national central bank and forbade the issue of new currency.
Act on Credits, which abolished the preferential laws on credits for state-owned companies and tied interest rates to inflation.
Act on Taxation of Excessive Wage Rise, introducing the so-called popiwek tax limiting the wage increase in state-owned companies in order to limit hyperinflation.
Act on New Rules of Taxation, introducing common taxation for all companies and abolishing special taxes that could previously have been applied to private companies through means of administrative decision.
Act on Economic Activity of Foreign Investors, allowing foreign companies and private people to invest in Greece and export their profits abroad.
Act on Foreign Currencies, introducing internal exchangeability of the drachma and abolishing the state monopoly in international trade.
Act on Customs Law, creating a uniform customs rate for all companies.
Act on Employment, regulating the duties of unemployment agencies.
Act on Special Circumstances Under Which a Worker Could be Laid Off, protecting the workers of state firms from being fired in large numbers and guaranteeing unemployment grants and severance pay.
Andreas Gandolfo
I would like to take the comment space here to make a few points. First of all, I would like to condemn Demopoulos' comment underneath. Saying the debt is the only problem Greece is facing today, is as demagogic as saying that Greece's only problems today are structural ones. And since you live in the U.S., you should also know that the constitution forbids the country to default on any of its debts (albeit it does not forbid printing money for its repayment). Further, your language is unacceptable and not of the level expected to be seen on a website whose main point is the synthesis of ideas.
My second point concerns the argument for opening up of markets. This argument has economic validity, but also psychological and sociological. Rigid employment rules discourage hiring, especially in the times it is needed most. If you think about it logically, why would I, with a company that produces XYZ risk being burdened with a new employee that I will not need if the economy turns sour again, but I cannot fire because the unions forbid me from doing so? And why would someone at the age of 23/24 be interested in entering a position that guarantees such stability. At that age you want to prove yourself on the job, not before you start. Lets not forget that the indignados in Spain, who encouraged the aganaktismenoi in Greece, were asking for that exactly, to make it easier to hire and fire people.
Last, you are right about the debt burden, in that it can indeed drag down an economy. That though does not make Greece the equal of a patient with high medical bills. Debt was incurred voluntarily, and could have been used to finance the real economy, instead of pensions, public wages, ghost jobs, armaments, and imports. Lets also not forget all the European packages that were directed to Greece and became villas, swimming pools, vacations, and anything else you might think of but true production. All this money could have gone to developing aesthetic touristic attractions, better port and road infrastructure, better farming practices, improved public education, and many more. Instead it was used to buy votes, create politician's but also others' pensions, and give an illusion of increased spending power to people, which pushed prices up, and increased imports, while projecting the false idea that all went well (keep calm and carry on).
Greece's debt burden was cut once already, and will most probably require one more realistic cut. A further push back of maturities could provide the economy with breathing space, enough until a sustainable debt burden can be determined and a new restructuring can be achieved. But we also need to keep in mind that just like at your job Mr. Demopoulos, you do not forgive everyone's debts, and try and maintain a fairness in your system, so too should Europe. Forgiving the debts might give breathing space to the economy, but it can be interpreted as a grace to Greece's misbehavior. And since we have a democracy in Greece, and I saw Greeks continuously kicking the can down the road for problems they knew very well and tacitly, or even actively endorsed, letting these people off the hook is amoral.
Greece's solution can only come by careful balancing of the debt burden, and a boosting to the real economy. The politicians have to muster the courage to say things as they are, and allow for people to understand the complexity of the situation (and not try and simplify it with sentimentalism, and demagoguery). Austerity should indeed be the last concern, and at least always follow debt reductions and especially economical reforms. But Greece's track record has scared the EU that it will set an example of always doing the bare minimum to scrape by, avoiding the long term solutions that are needed for our country.
PROCYON MUKHERJEE
This is in response to Gary’s repeated reference to public debt and taxation and its equivalence and costs. Let me try to bring in a dynamic that goes beyond the simplistic paradigm that Gary has constructed.
The first part of the dynamic is that the tax revenues are cyclical with a slight phase lag with the business cycles and there is therefore the attempt made towards ‘tax smoothening’. The second part of the dynamic is the attempt towards inflation targeting and making a one-on-one increase in the nominal interest rate versus a larger increase and how the market participants respond to it; too much of restraint by the market participants renders the passive fiscal policies infeasible therefore. The third is the threshold level of public debt and beyond which monetary policy independence is doubtful. There is beyond this the issue of general price level, private wage and general employment level dynamics.
Procyon Mukherjee
Gary Marshall
Hello Procyon,
You sound very much like an economist and a Keynesian.
The short proof only shows that Taxation has no financial benefit for a nation.
If a nation were to borrow instead of Tax, the assets created will equate to the sired liabilities.
The proof may be simple, but its intended to be simple so that one may easily understand it.
As Taxation has no financial benefit, then why does any nation Tax to fund its public expenditures?
I know that tax revenues are cyclical. The government expends most when the economy is at its peak. It expends least when the economy recedes. The very opposite of what prudent policy should be.
By abolishing Taxation and solely borrowing, a nation's public expenditures will reach a maximum when the interest rate reaches a minimum, and a minimum when the interest rates a maximum. This should greatly temper ruinous fiscal tendencies inherent in Taxation and save the nation a hell of a lot of pain.
With borrowing, government will be forced by its petulant and perpetual banker to justify every public expenditure. As funds will now come with a capital charge, the government will be compelled to ensure returns greater than all costs. This measure should get rid of all that public squander and destructive inflation now infesting every public expenditure undertaken with borrowed money. As there shall be no inflation, there will not be no further need for inflation targeting by any monetary authority. As there shall be little squander, the nation shall produce at rates far greater than previously, ensuring a wealthier nation for all.
Employment will soar when the deterrent effect of Taxation is removed from the economy. Individuals and firms will no longer have to factor in the harmful effects of Taxation in calculating economic outcomes on their household or commercial activities.
What a better world it shall be.
There will also be little need for government to interfere in and disrupt the financial markets with ill-considered monetary policies like current Fed practices. The financial markets will let the market forces of unfettered supply and demand determine interest rates.
I hope this has been helpful.
GM
Gary Marshall
Hello Yannos,
Here is a solution to the Greek problem. If anyone can find the flaw, I shall be more than happy to give him or her $50,000. I am just tired of doing this.
####
The costs of borrowing for a nation to fund public expenditures, if it borrows solely from its resident citizens and in the nation's currency, is nil.
Why? Because if, in adding a financial debt to a community, one adds an equivalent financial asset, the aggregate finances of the community will not in any way be altered. This is simple reasoning confirmed by
simple arithmetic.
The community is the source of the government's funds. The government taxes the community to pay for public services provided by the government.
Cost of public services is $10 million.
Scenario 1: The government taxes $10 million.
Community finances: minus $10 million from community bank accounts for government expenditures.
No community government debt, no community
government IOU.
Scenario 2: The government borrows $10 million from solely community lenders at a certain interest rate.
Community finances: minus $10 million from community bank accounts for government expenditures.
Community government debt: $10 million;
Community government bond: $10 million.
At x years in the future: the asset held by the community (lenders) will be $10 million + y interest. The deferred liability claimed against the community (taxpayers) will be $10 million + y interest.
The value of all community government debts when combined with all community government IOUs or bonds is zero for the community. It is the same $0 combined worth whether the community pays its taxes immediately or never pays them at all.
So if a community borrows from its own citizens to fund worthy public expenditures rather than taxes those citizens, it will not alter the aggregate finances of the community or the wealth of the community any
more than taxation would have. Adding a financial debt and an equivalent financial asset to a community will cause the elimination of both when summed.
Whatever financial benefit taxation possesses is nullified by the fact that borrowing instead of taxation places no greater financial burden on the community.
However, the costs of Taxation are immense. By ridding the nation of Taxation and instituting borrowing to fund public expenditures, the nation will shed all those costs of Taxation for the negligible fee of borrowing in the financial markets and the administration of public
debt.
Regards,
Gary Marshall
Hyperion Into_The_Light
Reports are that bank runs are already occurring.
Aristotelis Demopoulos @Ari_Dimopoulos
With all due respect Mr. Papantoniou,
YOU ARE A MORON!!! IN fact you are spewing the same rhetoric that outsiders are spewing on the Greek electorate in order to persuade opinion which would change the already wildfire that has taken place.
IT is impossible to turn back the clock now MR Papantoniou. Your self-interest here far out weigh the haphazard theories and realistic scenarios you are trying to portray. I must say, you are very irresponsible or possibly a Merkel LTD propaganda sympathizer. Your warped scenarios of a plummeting economy with catastrophic results and doom pending unless Greek agenda doesn't stay the course that it has which has systematically already made the country into a basket case. You my friend, Mr former Minister of Finance are the essence and
the real cause of this Greek tragedy. It was during the time of your party's administration that everything broke loose and triggered a downward spiral that is taking shape today in Greece. This phenomenon Mr Pantoniou is not a recent cause and effect but has been brewing since the end of the coup of 1974.
We all know the the ramifications! You don't have to reiterate like a broken record what austerity has inflicted on a very proud Greek nation.
But don't you dare, I repeat don't you dare spew
out theories of what WILL happen if Greece doesn't maintain the status quo. I venture to say you have
"tied your jackass" exeis thesi ton gaitharo sou" as the old Greek saying goes! I venture to say, you are not even living in Greece right now, and probably could care less!!!
Let me remind you my friend, it is demagogues like
yourself with your doomsayer scenarios that have made this crisis even worst than it is. You moron, You are painting a picture which WILL NEVER HAPPEN in Greece regardless of outcome.
Greece is not leaving the Euro you insane man!
If Greece leaves the Euro Mr former Finance Minister, there will be a tsunami so huge that it will effectively collapse the whole European Banking system itself.
We all know the effects of investment on a stagnant economy. You don't have to try to be prolific in your views!
But you don't know what is the real scenario. You are saber rattling to uphold the demagoguery of a failed system of which you are a product of.
Here are the facts my dear moronic friend.
The cost of Greece exiting the Euro will surpass 1.3 trillion euros according to Blomberg think tank.
Do you honestly believe that Europe and the ECB and the IMF and Deautchebank have the liquidity to sustain a Euro Bond market that will have run amok
given a Grexit? Don't you understand the dynamics
of contagion which are already spreading to the PIIGS especially Spain which is the real dark horse and the real end game for Europe. Greece's debt burden pails in comparison to that of Spain's at his moment.
Your contention here is to
maintain the status quo in Greece in these elections.
The Greek elections are not so much who will lead Greece, but rather a referendum on Austerity throughout Europe and the world! It doesn't matter who wins Parliament. Your brain is still so small minded that you believe that if Alexis Tsipras wins the elections, repudiation of the Greek debt will have catastrophic effects in Europe! IT DOESN'T MATTER ANY MORE you small thinking man who wins parliament!
Is it any wonder now in less than 1 month, Samaras of whom you endorse between the lines has made
an about face stance that the terms of the memorandum must be renegotiated.
Your micro-management ideas of how to stave off continuous economic calamity are within the confines of a continuous broad austerity policy and NOT a more realistic view of condemnation of austerity itself. Although you
try to give positive ideas that will have the effect of real growth, lower unemployment and stabilization of
an economy run to the ground, you are in fact preaching much to do about the same. In my book, you are a fraud! You are a mole, placed by your
former and current friends to exact fear and panic in the Greek people. Too late! Greeks have already
made their decision. Two years of third world everyday life in a progressive European country is enough!
Let me give you a lesson Mr finance minister in economics 101. I recommend you enroll as quickly as possible.
Lets start from general theory: Government spending + Investment plus exports = GNP
There is no factor in this general theory of economics 101 to account for debt burdens incurred by government borrowing.
Debt in general is a farely new phenomenon that came into effect after the 1970's when real wages flattened against capitalistic profits. This has been par for the course for 35 years now and the real culprit of the economic crises in the United states, Europe and in fact the whole world.
You CANNOT introduce policies of growth and stability like you are doing without first addressing the debt burden which stands now at 170 percent of real GDP in Greece. In order to affect real change in a stagnant economy such as Greece's, first you must come up with a real solutions. Greece is not the United States my moronic friend that can just by executive order by the President make a call to the Federal Reserve and have 1 trillion dollars printed out of thin air. There are no such words in the Greek dictionary such as "debt ceilings raised" which is common practice in the United States.
Your Marshall Plan" has a huge hole in it because it does NOT address the debt burden.
If for argument sake the status quo is maintained
and bail out funding continues to avoid default
the only effect it will have will be on the markets Mr Papantoniou! Not structural changes in the way of life in Greece which you seem to be totally oblivious too!
You care about the markets my friend. I care about the people of which you don't give a damn.
It is appalling to me that suicide rates in Greece
have increased over 23 percent in last 2 years.
It is appalling to me, that burglaries have become an everyday phenomenon on the streets of Athens and Greece as a whole.
It is appalling to me of which you don't give a damn,
that Greek migration has once again become a real
systemic effect of the austerity originally put into place, as thousands of Greek citizens are looking to get out before it is too late, of which you don't give a damn!
It is appalling to me that unemployment has reached depression levels, with over 50 percent of the young people out of work and a bottomless pit future in their lifetime of which again don't give a damn!
Your structural funds wont even make a dent in the
social fabric of Greek life of which again don't give a damn.! Well I do give a damn, even though I live in New York and don't have an economic crisis in my own house. But I care you indignant man!
I am holding you and all those that spew out unrealistic solutions to these problem accountable
for the Greek tragedy unfolding. You are no longer a policy maker Mr Papantoniou.
But you have a social responsibility not only as Greek born citizen but also as a journalist
to write and echo measures that will have changes in peoples lives Mr Papantoniou. NOT THE MARKETS!! YOU MORON!!
When your house is on fire, do you care if you did not pay your damn mortgage or electric bill???
Or you care about your family and their welfare to get them to safe ground.
You are a demagogue and a false prophet.
I condemn every piece of of your theories!!
I hold you responsible for falsely depicting outcomes that have no intrinsic value or positive effect to the everyday life on the streets of
Athens and Salonika and every corner of Greece.
GREECE MR PAPANTONIOU HOW YOU GOT YOUR POST IN THE FIRST PLACE BOGGLES MY MIND!
Your "Marshal Plan' is an exercise in futility,
unless first we address the debt burden that has systematically destroyed the lives of 11 million people.
How doe we address this debt burden of a country
that has no industry, no competitiveness in any goods and services market??
Very simple Mr. Papantoniou! We eradicate it!
In my line of work as consultant of one of the largest
health systems in the world where we deal every day
with medical debt of patients who CANNOT pay
exorbitant amounts of racked up hospital bills
we make realistic decisions.
How can we go after or sue a person that has incurred a hospital visit for $50,000 if we first ascertain that this exact person has no intention or the means of paying back this huge bill? VEry simple! We write it off as bad debt and our client has to eat the cost. Unfair yes! but practically sensible.
Greece, to use the same analogy my slow brained friend so that it is in a simple context which your small thinking mind can understand is the same patient who has racked up the $50,000 bill. What are we going to do here here Mr x finance minister, if we first extrapolate the fact that this patient doesn't want to pay , has no means of paying today tomorrow and in his life time.
DO we go ahead and garnish is 200 dollar a week paycheck for 10 dollars a month, which will pay back nothing to us? . In fact, it make it more costly to pursue the matter. Or do we use our brain and common sense and say bad debt write off!!
"Life isn't fair" as President John F Kennedy once said. So be it! Children in Africa are also dying of starvation!
You with your moronic plans and and web spinning ideas to keep a dead man walking is so preposterous that it seems comical!
I know this is your own poppy cock ideas and not endorsed by your employer. But if I was your editor
who has social responsibility in mind, I would throw your paper in your face and say go do that over again . Unacceptable!
You are only a small peon in the grande scheme of things! You have no policy authority! You have no
influence.
There are hundreds like you all over the net and media!
However, when someone like you comes in a public forum like this and spews ideas that make no sense, and in fact shows no social responsibility, there will people like myself on the same level
repudiating and condemning your garbage!
Odysseas Argyriadis @/#!/O_Falainothiras
Mr. Papantoniou, you know full well that the only way to save Greece is to finally cleanse it of corruption. We have allowed corruption to permeate ALL 3 authorities. Now, the only way to alleviate the inevitable outrage, is for heads to roll.
The people that should be ideal in their respective work (all of the above) are acting like petty criminals. The police is well known to act like the mob, Judges are corrupt and the parliament was orchestrating this whole affair by voting on thousands of laws.
European politics should be expected to be secondary at this moment since the parliament has sold out the country's sovereignity to the Union. We must now decide whether we want to stay a part of the EU, and through this try for the best in reforming it or even completing it, or get out of it and get devastated.
While we're at it, I find it abhoring that Greece still has not separated State from Church. I mean, we're part of the EU, no?
Flip Bibi
"Incompetence of the governments that implemented...." Oh please don't tell me you are blaming others for the difficulties Greece is going through. The Greek Government WAS/IS incompetent. It lacked the backbone to stand its ground and negociate with the labor unions demands. The majority of the citizens failed the Goverment, because it failed the people. Greece is in no position to drive a hard bargain against those whom are proping it up, simply because history shows how unstable Greek politics are. Don't bite the hand that feeds you, Greece. If you want to stay in the EU, major reforms should take place in your house, not in Germany, IMF, or the other countries that are paying your salary.