The bold but ra­tio­nal pol­icy ap­proach of Greece

Financial Mirror (Cyprus) - - FRONT PAGE -

The in­ter­na­tional me­dia is jus­ti­fied in be­ing pre­oc­cu­pied with the pol­icy de­ci­sion of the new Greek gov­ern­ment to chal­lenge the le­git­i­macy of the Troika of in­ter­na­tional lenders and its eco­nomic phi­los­o­phy. Re­gard­less of the re­sult of the emer­gency Eu­rogroup meet­ing on Wed­nes­day, ahead of the Euro­pean Coun­cil, it would be im­pos­si­ble for the Greek gov­ern­ment to ad­here to the con­tin­ued im­ple­men­ta­tion of the aus­ter­ity poli­cies dic­tated by the Troika. Over the last five years, Greece’s GDP shrank by more than 25%, un­em­ploy­ment rose to 30% while among young peo­ple it is nearly 60%, and the de­mo­graphic out­flow has taken alarm­ing pro­por­tions as the public debt in­creased from 125% to al­most 180%.

Ques­tion­ing the Troika and the phi­los­o­phy of aus­ter­ity by the Tsipras gov­ern­ment, de­spite Ger­many’s re­ac­tion, clearly finds sup­port at var­i­ous lev­els in the EU and be­yond. Even US Pres­i­dent Obama – whose coun­try just added 257,000 new jobs in Jan­uary 2015 – em­pha­sised that the cur­rent sit­u­a­tion and the treat­ment of Greece can­not con­tinue. The mes­sage is clear: Ger­many can­not in­sist on push­ing Greece and other coun­tries into aus­ter­ity poli­cies and a vi­cious cir­cle of re­ces­sions.

The re­al­ity is that the Ger­man dog­ma­tism and its hege­monic at­ti­tude have plunged Europe into deep trou­ble. The stance of the new Greek gov­ern­ment is not only brave but also ra­tio­nal. This ap­proach in no way con­dones the in­her­ent re­spon­si­bil­i­ties of the spe­cific coun­tries in re­la­tion to their struc­tural eco­nomic prob­lems and dis­tor­tions. But it un­der­lines that the recipes of the Troika and the phi­los­o­phy of Ger­many ex­ac­er­bate the prob­lems in­stead of re­solv­ing them ef­fec­tively. In other words the Troika’s fixes have failed.

The Greek gov­ern­ment clearly prefers to find a com­monly ac­cepted for­mula within the Eu­ro­zone. This may en­tail re­lax­ation of the pro­vi­sions of the mem­o­ran­dum and spe­cific ini­tia­tives for a re­turn to growth so that the coun­try can begin to re­pay its obligations. Greece has si­mul­ta­ne­ously re­vealed its plans for the re­struc­tur­ing of its debt. For the im­ple­men­ta­tion of such a pol­icy, the sup­port of the EU in­sti­tu­tions is re­quired.

Fur­ther­more, in ad­di­tion to the mon­e­tary eas­ing an­nounced by the Euro­pean Cen­tral Bank on Jan­uary 22, there are al­ready voices in the EU in favour of a fis­cal ex­pan­sion­ary pol­icy as well. How­ever, in case the Euro­pean Cen­tral Bank goes ahead with its in­ten­tion to refuse to ac­cept Greek bonds, this would con­sti­tute a bla­tant act of black­mail as well as dis­crim­i­na­tion. Per­sis­tence in such an op­tion would even­tu­ally lead the Eu­ro­zone it­self into in­creased ten­sions and push Greece to opt for the ir­re­versible. In­deed, it is es­sen­tial that Greece is not forced to de­fault and re­turn to its own na­tional cur­rency.

The heart of the mat­ter is that, if Ger­many con­tin­ues to re­main in­flex­i­ble and dog­matic, the Greek gov­ern­ment will ob­vi­ously be pushed to­wards the in­evitable. Suc­cumb­ing to and fol­low­ing the Troika’s recipes will bring un­fore­seen ad­verse ef­fects for the coun­try. This will en­tail eco­nomic col­lapse, de­fault and re­turn to its na­tional cur­rency. Such a devel­op­ment, though, will bring a chain of re­ac­tions be­yond Greece. It should be un­der­stood that Greece is not black­mail­ing. In­stead, it has reached the lim­its of poverty and hu­mil­i­a­tion. Con­se­quently, the ra­tio­nal op­tion is to change the pol­icy fun­da­men­tals not only for Greece but for South Europe and the en­tire Eu­ro­zone as well. In this re­gard Greece has also called for a New Deal for the Eu­ro­zone as a whole. This may in­clude the fi­nanc­ing of large scale projects by the Euro­pean In­vest­ment Bank.

De­vel­op­ments in Greece will af­fect the en­tire Euro­pean project. In this sense, Greece is lead­ing the de­bate for a new Europe.

Closer to home, Cyprus should also as­sess th­ese de­vel­op­ments and re­spond ac­cord­ingly. Should the Cypriot gov­ern­ment con­tinue the dog­matic ad­her­ence to the phi­los­o­phy of the Troika, it will find it­self in the same predica­ment of Greece pos­si­bly in less than two years. It must be un­der­stood by the Min­is­ter of Fi­nance and the Cen­tral Bank Gover­nor that cred­i­bil­ity does not mean a blind fol­low­ing of a dic­tated road map if that road map con­tra­dicts ra­tio­nal­ity. Even at this late stage, Pres­i­dent Anas­tasi­ades should also act in a way that will sal­vage his tar­nished cred­i­bil­ity and dig­nity as head of state and give the Cypriot peo­ple a mean­ing­ful prospect, con­fi­dence and above all, tan­gi­ble re­sults.

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