Jul 072015

Greece is not in a good place. Mistakes that have cost lives have been made by (in no particular order) Syriza, PASOK, New Democracy, the IMF, the ECB, the EC, the EU member states, the individual politicians involved and by people who have stood on the sidelines and not brokered a deal. The one thing there is plenty of to go around is blame.

None of which matters.

The previous packages of reforms from the IMF, EU and ECB that Greece signed up to were badly designed, doomed to failure and even the IMF now admits were counter productive. The anger felt by the Greeks at what basically amounted to medieval quackery is as understandable as the anger felt by Germans at paying for unsustainable pensions that can’t or won’t be reformed.

None of which matters.

The poisonous personal rhetoric between Yannis Varoufakis and Wolfgang Schäuble undermined what little effort was being put into building trust but was only part of a fundamentally dysfunctional relationship where successive Greek governments promise things they have neither intention or ability to deliver and the EU makes them promise more because it avoids properly confronting the reality of the false accounting which Greece used to get into the Eurozone and which the Eurozone tolerated because it was advantageous to do so.

None of which matters. Now.

What matters now is doing a sustainable deal. The only sustainable deal which has ever been on the table:

  • Debt relief in the form of a relatively long (5 years?) repayment pause with suspension of interest which includes privately held bonds (effectively a haircut)
  • Investment through the European Structural Fund
  • Bringing the Greek economy more fully into the tax system, potentially by retaining low ATM limits and forcing business into electronic transactions which are harder to keep off the books
  • Pension reforms

Without cover from debt relief & investment to implement reforms at a sensible pace the incentives on individuals and companies to maximise their income in an increasingly dysfunctional system by avoiding tax will prevail in a classic tragedy of the commons exacerbating the fundamental dysfunction of the Greek economy. Without effective economic reforms the Greek economy will remain stagnant, dependent on state mediation of a small proportion of the economy through regressive taxes from those who don’t have much to themselves while the better off bribe their way around individual failures and we end up back where we started. 

No, there isn’t a lot of good will going about. There’s less trust. The only thing that seems to be left is rather shabby attempts by everyone involved to not end up carrying the blame for the alternative which is both horrific and pointless: the Greek debt burden needs to come down, it needs investment from outside, it has to develop an effective tax collection system and the pension system has to change. If any of those aren’t done then we’ll end up back here in 6 days, 6 weeks, 6 months or 6 years.

There simply isn’t a choice. The deal I outlined can be done now, just as it could have been in June. Or January. Or last year. Or 2011. Or 2008. If it’s not done it’s the same deal that will need doing next year. The only difference is that until it’s done the more expensive it will be both for the creditor nations in terms of cash and for Greece in terms of lives lost, businesses destroyed and opportunities missed.

There is only one choice. Both sides need to do that deal and do it now. Both sides need to be the adults in the room.

 Posted by at 22:21

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