Greek gyrations

Christopher Tsoukis is a senior lecturer in economics at the London Metropolitan Business School and a research fellow in the Hellenic Observatory at the London School of Economics.

The popular anger toward the Papandreou government may be construed as an implicit dialogue between Greece and its European partners, prominently Germany. Many in Europe are dismayed with the Greek ‘indignados', their anger and refusal to accept responsibility for the country's debts.

While the latter is rather dishonorable - the debts in a democracy are owned by the people, just like the decisions that led to them - one may be more justified to share some of their skepticism about the overall strategy of bailout-driven austerity.

More than a year after the bailout package of May 2010 worth 110 billion euros ($160 billion), it is fairly clear that the strategy of fiscal consolidation is not working. Greece has made considerable progress in limiting the deficit, but the resulting austerity has greatly hampered tax collection, and has exacerbated the debt-GDP ratio. At the same time, the required structural reforms (modernization of state structures, privatizations) need time. So, progress on one front, stalemate if not setbacks in others.

Overly optimistic

The result is that the prospect of Greece having sound primary surpluses and vigorous growth by 2014, prerequisites of its return to markets, looks too optimistic. Thus, the mood has prevailed that the sacrifices are futile. Moreover, there is a lingering suspicion that the bailouts are not for Greece's sake but to protect the creditors (eminent commentators, e.g. Paul Krugman, have leveled this charge against the Brady plan of the early 1980s) (US plan that emphasized debt-forgiveness for highly indebted developing countries - the ed), and a feeling that the country is falling victim to voracious international financial markets.

The constant indecision, dithering, sometimes wrangling, of European authorities means kicking the can down the road, not arriving at a definite settlement. A seemingly ideologically-driven and misguided insistence on rapid privatizations as part of bailout preconditions may only lead to state impoverishment: In a country with no experience of large-scale privatizations, weak or non existent regulatory structures, and with a stock market at rock-bottom, to call for one big privatization every 15 days is a perplexing move!

Greek angst

Thus, the unspoken fear is that a default eventually cannot be averted. Add to this the widespread anger of a young generation in despair, the plight of the unemployed (15 percent of the work force and rising) and hatred of politicians widely perceived as incompetent and corrupt and you get the toxic mix that produces the mayhem at Syntagma (‘Constitution') Square.

Raw emotion, anxiety and prolonged uncertainty, rather than a clearly articulated alternative, drives people to the Square and leads them to self-destructive behavior for example the repeated strikes at the start of the tourist season.

What may be the way out of this impasse?

A quick default now is no solution because it would entail serious hardship for the country but also huge risks for the eurozone and indeed the world financial system. But default in three years, after a swath of state assets have been sold for a pittance, is no solution either, as the conditions will not be there for a recovery.

Burden sharing

Hopefully the lifeline of the bailout package(s) will continue, averting financial collapse. At the same time, it should be clear that the country will be unable to honor its commitments (though it ought to); the burden should be split between the EU authorities and private creditors, as well as the country itself.

Recent French proposals point in this direction, showing the first real glimmer of hope for months, and creating a prospect that could convince the Greek people as well as the markets. At the same time, help for kick-starting Greece's economy is also crucial, either via spending on infrastructure in a kind of ‘new Marshall Plan' and/or via a weaker Euro.

Ensuring that the country eventually returns to recovery is also the best way for creditors to safeguard their money. On the other side of the coin, Greece must absolutely ensure that it returns to primary surpluses and promotes reforms and privatizations on a realistic but swift timescale, on the basis of external advice to be independently carried out. And European politicians and intellectuals need to debate whether political integration should match economic integration.

Nation-building

Greece has made considerable political, social and economic progress since the end of the military regime 37 years ago. It has immensely benefitted from attaching itself to the great European project, and is grateful for the assistance and understanding that the European partners offer.

The ‘3rd Greek Democracy' is steeped into the culture and agenda of 1974, the year of its inception. In that agenda, economic modernization and rationalization did not feature as high priorities, for reasons that will not be missed by anyone even vaguely familiar with the country's recent history, like the European public who voiced opposition to the colonels.

Under the continuing support, guidance and modernizing influence of Europe, Greece can proceed to economic reform as the next step in its nation-building program.

Editor: Michael Knigge/Rob Mudge