Harry Theoharis is an MP for Greece’s To Potami party.
At the start of a make-or-break week for Alexis Tsipras’s government, it is a fact that Greece is now seen in many European capitals as a state that refuses to modernise and must therefore depart the eurozone, if not the EU altogether.
This view might be understandable, but it is wrong. Understandable due to the antics of a Greek government that has refused to engage in a constructive and competent manner with its creditors. Wrong because it is based on false assumptions about what has been accomplished in Greece over the past five years, about what a consistent majority of the Greek population wants, and about what the consequences would be for Europe.
Ultimately, this view is the mirror image of the – similarly understandable but similarly wrong – view held by the current Greek government, that the economic adjustment programme, widely known as the “memorandum”, is the sole source of all the country’s ills. Understandable because there is no doubt that the austerity prescribed as part of the memorandum has contributed to Greece’s great depression in terms of lost output (-25% in real terms) and unemployment rates (peaking at 27.5%).
But this view is wrong because austerity was inevitable when Greece was locked out of financial markets in 2010 with a structural fiscal deficit exceeding 18% of GDP the previous year, and wrong because the impact of this was always going to be severe for a chronically uncompetitive economy dependent on domestic public spending.
Austerity has played the role of the useful idiot for populists and nationalists in Greece who don’t want to accept that the roots of Greece’s economic and political problems were largely home-grown: chronically weak fiscal institutions and a dysfunctional legal, regulatory and tax system that for decades prevented the emergence of globally competitive private enterprises.
This is not to say the memorandum has been well-designed. Independent analysts, including the IMF’s own internal evaluation office, have identified a number of critical design faults: the massive debt haircut of 2012 should have been implemented in 2010, which would have allowed a smoother fiscal adjustment path and resulted in a shallower recession.
Even after that, the “troika” of European commission, European central bank, and International Monetary Fund has consistently placed more importance on adherence to overly ambitious fiscal targets rather than structural reforms and state-building.
In addition, structural reforms that were implemented early on – such as the necessary but abrupt adjustment in labour market regulation and the minimum wage without consultation with social partners – were poorly sequenced and proved insufficient to boost exports given the sclerotic business environment.
In short, there is plenty of blame to go around. There is no question however that the bulk of the blame lies with successive Greek governments that have only fitfully shown true understanding of the economy’s problems and a willingness to confront them. It is ultimately this lack of political ownership of reforms that separates Greece from other programme countries, and which is the main source of angst in European capitals.
Many, including myself, held hopes that the Syriza-led government elected last January would change this dynamic given its lack of ties to the clientelist system. Unfortunately, its performance to date has shown them to be just as conservative, tribal, power-hungry and ideological as their predecessors.
Not only do many of its appointments in key positions owe their jobs to party allegiance rather than competence, but the only common thread to their governing strategy thus far has been a blanket reversal of reforms, good or bad, undertaken by previous governments – seemingly for the sole reason of making a symbolic break with the past.
Moreover, the government has failed to articulate a concrete, progressive, forward-looking reform agenda, and move beyond its populist talking points to aggressively embrace the urgently needed structural reforms, many of which are outlined in the memorandum. These include market liberalisation, business environment simplification, an expanded and better targeted social welfare system, a truly meritocratic public administration, privatisation in sectors dominated by inefficient state monopolies, and pension reform.
As a result of the government’s lack of concrete reform proposals and general intransigence, the creditors have reverted to requesting ambitious fiscal targets and further horizontal austerity measures (ie VAT hikes) that are easily monitored in order to justify further aid to their parliaments, while the structural reforms are pushed back again.
So is all lost? Actually, beneath the hype in the news about austerity, default and Grexit, a genuinely exciting structural political opportunity has emerged: several opinion polls show that there is a silent but strong majority of Greek people who want two things: an agreement that ensures eurozone membership, and a cross-party government of national unity that can deliver.
If the current Greek government – comprised of two parties who for five years railed against the bailout – would sign its own memorandum, this would potentially create closure and an opportunity for renewal. Under previous Greek governments, there had always been at least one large populist opposition party deluding an electorate under severe stress that there were painless alternatives to the bailout. This structural political problem has now been addressed, and the conditions are ripe for a government that finally owns its reform programme.
The frustration and fatigue felt in many European capitals regarding Greece is understandable, but these aren’t good reasons to miss this unique opportunity for both Europe and Greece.