Finally, five years after this train to hell left the station, it seems the Times and the entire Western establishment has woken up to the devastating harm caused by Europes misguided austerity policies !! But ask yourself the question : Who in authority was prepared to say this when it could have counted - when it could have prevented the meltdown that hit Greece and other southern European nations and Ireland so terribly badly? Answer : Almost No-one! Even to this day, none of the main European and international institutions that were the main architects of this recipe for economic disaster has drawn back and proposed a real change of course. So, what is needed? Greeces debt - that had been held stably by too high at around 95-105% of GDP for 35 years - is now double that - almost 200% of GDP! Unemployment - that had been 8% - is now 25-27%! Many teachers have been laid off - thus undermining future productivity and growth. The economy is growing - but anemically at 0.7% - having been shrunk by 30%! Deflation is on the rise. Ironically, if you are not politically well connected, you will pay more taxes in Greece than almost anywhere else in Europe and receive less back in public services! Add to this, few of the real reforms Greece does need for long-term growth have been carried out. In short the Greek bail-out has been a total disaster for all but Greeces private creditors. What To Do Now? Any sensible Greek government that comes to office this spring needs to quickly turn away from these disastrous policies. They were founded upon the quite misguided notion that the main problem of Greece in 2009 was government profligacy and debt. In reality, what hit Greece was the collapse of its two main exports - commercial shipping and tourism. It was the collapse of private demand and private employment that brought about Greeces crisis. To add savage cuts to government on top of these converted a severe recession into all out depression! ~ The Greek government - with or without the support of the IMF, the ECB, the EU and the German government - should negotiate the rescheduling of its debt over a long time frame - say 25 years - but on market terms. This would free up resources for government to stimulate renewed growth and to reverse the potentially catastrophic decline in key public services, especially education. ~ The Greek government should design and implement its own domestic policy reform program - aimed at ensuring long-term prosperity for all. This should include : scrapping the 50% payroll tax that all but prevents modern business hiring today; reducing the VAT rate from 23% to 15% but ensuring that it is actually collected. (Currently, only about 6-9% is collected!); open up Greeks labor market to make it easier for new graduates to find jobs in Greece rather than having to emigrate to other European countries - such as Germany and the UK. ~ The Greek government needs to launch a major public works for employment program. The goal should be to put as many Greeks as possible back to work as soon as possible. ~ By converting most of Greeces debt - that is currently too short-term - due in 3-5 years - into very long-term debt and by converting much of it into very long-term bonds (say 30-50 years) but with a coupon payable in market terms, stability could be restored to Greeces public finances. ~ The two main political parties - Pasok and New Democracy - that have played patronage politics with the government payrolls for the past 25 years - need to accept upfront to reverse and undo the results of this. This is critical to restore international and domestic credibility to the Greek government and to Greece generally. I hope that, once the elections are over, whoever wins will have the balls and good sense to finally move Greece in the right direction!
Posted on: Mon, 05 Jan 2015 00:14:56 +0000
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