A New Approach in and for Greece I « Euro

A New Approach in and for Greece I

July 10, 2012 by

By Daniela Schwarzer

The election results of June 17th and a possible renegotiation (most probably of the time line) of the conditionality imposed on Greece in exchange for the rescue package may give the country some breathing space. The new growth strategy agreed at the June European summit may also stimulate the Greek economy which is in recession for the fifth consecutive year a little. But even if all this happens and some political stability returns to Athens: the tasks the Greeks are facing are still immense. The question from the outside remains, of course, what can be done to help on top of providing credit.

The first and most important task is to stop all speculation about Greece leaving the Euro immediately and for good. Persistent discussion about a Grexit has slowed the inflow of necessary capital, not only into the bond markets, but also into the real economy. Effects are disastrous. There is a liquidity squeeze: businesses are not being granted credit and often cannot even buy necessary stocks. If investment is taking place at all, this is not to increase production because growth prospects are non-existent. It is mostly for re-configuring production in the face of disappearing sales markets. Thus domestic investment doesn’t increase GDP while foreign companies are reluctant to invest directly. So, a crucial part of the strategy to reinstall trust in Greece consists in stopping the debate on the country’s possible exit.

But what about the EU’s role in supporting the reform process – beyond conditionality (which many see as making things worse rather than better…)? Is there anything to do on top of what the troika and the task force do?  Well, two years of crisis management have made quite clear that the top-down approach to reform is bumping against limitations. Yes, further cuts, liberalisation and far-reaching public sector reforms are pending and need to be implemented. But the task is even larger. Reading and listening to Greeks on the deficiencies of their home country, one priority that emerges is a deep-running administrative and political renovation including an exchange of elites. This is required to put an end to corruption (see the bad records for Greece with Transparency International), clientelism and political cronyism. Such measures are necessary to improve the functioning democracy and to prevent populist parties with an anti-elite, anti-EU discourse gain more and more ground. And it is also a necessary step in the process of ensuring Greece’s return, one day, to a better economic situation. A functioning public administration is needed to improve tax collection capacities. Reasonably swift and reliable responses from the public sector are also necessary to get investment going once the price level has adjusted.

Such far reaching reforms can only be implemented by domestic forces; motivation needs to come from within the break up the structures, in particular when it comes to inducing cultural change both in politics and administration. A possible start is to focus energies on the local levels.

Dr. Daniela Schwarzer is head European integration research division, Stiftung Wissenschaft und Politik (German Institute for International and Security Affairs), Berlin.

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