Karl Aiginger and Kurt Bayer :
Six months of talks, seventeen hours of summit negotiations, numerous meetings of Eurogroup finance ministers, heads of state, and the Commission, the ECB and IMF finally yielded a preliminary “agreement”. The next day the Greek prime minister admitted that he did not support the substance of the agreement; the German finance minister reiterated his rejected proposal for a “temporary Grexit”. International dictionaries will need to define “agreement” differently from now on.
But a decision has been reached. This is vitally important both for Greece and the eurozone, but also the European Union as a whole. An “official” Greek government default with the country leaving the Eurozone (or not), possibly adopting a new currency, would have reversed the EU’s principle of “ever closer union”, negated the reliability of the implicit eurozone guarantee for its members, and been seen as a rejection of the solidarity principle of the European Union, where stronger members help weaker ones, where the Union’s well-being takes priority over individual member states’ predilections.
The decision to start negotiations on a third Greek rescue package is a window of opportunity to provide enough funds for Greece to repay its international creditors, and affords it time to restructure its economy so it can become independent thereafter. However, the crisis, the lengthy negotiations, the distrust that has been sown on all sides, the potential split between “Northern” and “Southern” members of the eurozone, the absence of the United Kingdom and other non-euro EU countries – all this chaos needs to be turned into a “lesson learned” for all concerned.
Economically, more important than avoiding sovereign default will be for Greece to strengthen its economy; its puny 30% export share, a dismal rate of productivity, low R&D spending, an excessive unemployment rate with staggering youth unemployment. But even if Greece could devalue – as the proponents of a “Grexit” keep maintaining as the only solution for Greek woes – this would not increase the quality and quantity of their exportable products. If you don’t have enough products to sell, zero wages will not rescue you.
Thus, Greece needs an investment strategy to increase productivity, to widen its production and services portfolio, to upgrade the value of its products, to foster innovation, make use of sun and wind for energy production and cut fossil fuel reliance with renewables. In short, Greece needs a modernised, quick-start “Marshall Plan” to develop its economy, with new, internally mobilised resources and European help. It needs to create the conditions for investment, improve the investment climate, speed up permits and licences, make taxation fair and efficient, fight corruption and clientelism.
The problem is not purely financial, Money can be raised by repatriating Greek assets abroad, leveraging patriotism from the Greek diaspora, taxing the Church and inducing it to offer humanitarian aid, and reducing military expenditure. Rather, it is a lack of will to tackle the dysfunctional, semi-feudal, oligarchical manner of doing business in Greece. Sadly, the present government has been lacking in this respect, instead expending inordinate amounts of energy to fight the Troika, the platform on which they were elected. And sadly, the agreement sets no employment goals, only budgetary ones.
Some of the necessities of restructuring in Greece also hold for Europe as a whole. The eurozone is barely equaling its 2007 GDP, while the United States is already 12% richer. With US growth rates the eurozone today would be €1.5 trillion better off, unemployment would be lower, the pessimism of the population lower, and the attractiveness of anti-EU parties much weaker. Europe needs to shed its fascination with budgetary consolidation, and instead promote growth and employment. A more diverse economic policy portfolio is needed, targeting investment on the future of Europe, on economic dynamism, social cohesion and environmental viability. Pursuing budget consolidation at the expense of other policies leads to social, economic and, ultimately, political crises. European solidarity requires all countries to transfer some sovereignty to the European institutions, with the aim of making Europe stronger and avoiding acrimonious name-calling and the build-up of mutual distrust.
The negative experience of the Greek negotiations needs to be put behind us quickly. Successful organisations refrain from using threats, blackmail, domination and tactical games in order to generate a spirit of community. Only if all Europeans learn their lesson from this laborious process can we look to Europe’s future with optimism. Europe will not survive a repeat performance.
(Karl Aiginger is the director of the Austrian Institute of Economic Research (WIF0), professor at the Vienna University of Economic and Business Administration and coordinator of the FP7 project WWWforEurope. Kurt Bayer is Emeritus consultant at WIFO. He was Executive Director of the World Bank and Board Director at the EBRD in London. He teaches at different international Universities)
