States­man­ship and the Greek cri­sis

Financial Mirror (Cyprus) - - FRONT PAGE -

To be­gin with, the Greek gov­ern­ment must be clear about the need for ur­gent eco­nomic re­forms. The coun­try’s econ­omy has not just col­lapsed; it is struc­turally mori­bund. The roots of Greece’s prob­lems stretch far deeper than the aus­ter­ity of re­cent years.

In 2013, for ex­am­ple, res­i­dent in­ven­tors in Ger­many filed some 917 patent ap­pli­ca­tions for ev­ery mil­lion in­hab­i­tants. Res­i­dent in­ven­tors in Greece, by con­trast, filed just 69 patent ap­pli­ca­tions for ev­ery mil­lion.

If Greece wants the pros­per­ity as­so­ci­ated with a tech­no­log­i­cally ad­vanced, 21stcen­tury econ­omy, it will have to earn it, by pro­duc­ing in­no­va­tive prod­ucts that are com­pet­i­tive on world mar­kets, just as Ger­many does. Do­ing so is likely to be a gen­er­a­tional chal­lenge.

For its part, Ger­many must ac­knowl­edge the enor­mity of Greece’s col­lapse. The Greek econ­omy has shrunk by around 25% since 2009; un­em­ploy­ment stands at 27%, with youth un­em­ploy­ment at nearly 50%. When Ger­many faced com­pa­ra­ble con­di­tions in the early 1930s, its cred­i­tors shrugged, and the re­sult­ing in­sta­bil­ity al­lowed for the rise of Adolf Hitler. Af­ter World War II, how­ever, Ger­many’s debt was slashed, en­abling it to re­build. Given this ex­pe­ri­ence, it should un­der­stand the im­por­tance of cut­ting a coun­try’s debt when the bur­den of ser­vic­ing it be­comes un­sus­tain­able.

The case for of­fer­ing a coun­try a fresh fi­nan­cial start is both eco­nomic and moral. This makes it dif­fi­cult for many bankers to un­der­stand, as their in­dus­try knows no moral­ity – only the bot­tom line. Politi­cians, too, tend to have their moral com­passes cal­i­brated to the re­lent­less hunt for votes. Find­ing ef­fec­tive and moral so­lu­tions re­quires gen­uine states­man­ship – some­thing that has been all too rare dur­ing the euro cri­sis.

Greek Prime Min­is­ter Alexis Tsipras and Ger­man Chan­cel­lor An­gela Merkel now have the op­por­tu­nity to rise to the oc­ca­sion as Euro­pean states­men. Since Tsipras’s elec­tion in Jan­uary, Ger­man of­fi­cials have barely been able to con­tain their fury that a left-wing up­start gov­ern­ment of a tiny, bank­rupt coun­try would dare to chal­lenge one of the world’s great economies. Fi­nance Min­is­ter Wolf­gang Schäu­ble, for ex­am­ple, has re­peat­edly sought to pro­voke Greece into leav­ing the eu­ro­zone.

Tsipras’s re­sponse to these provo­ca­tions has been clear and con­sis­tent: Greece should stay in the eu­ro­zone, and it needs a fresh fi­nan­cial start to do so. On July 5, the Greek peo­ple backed their young, charis­matic leader with a decisive “No” vote on the un­rea­son­able de­mands of their coun­try’s cred­i­tors. Their de­ci­sion will one day be recog­nised as a vic­tory for Europe over those who pre­ferred to carve up the eu­ro­zone, rather than give Greece the chance to start anew within it.

At the meet­ing be­tween Tsipras and Merkel this week in Brus­sels, the stakes could not have been higher. The eco­nomic costs of the im­passe have been cat­a­strophic for Greece, and pose a grave threat to Europe. The break­down of ne­go­ti­a­tions last week sparked a bank panic, leav­ing Greece’s econ­omy paral­ysed and its banks on the verge of in­sol­vency. If the banks are to be re­vived at all, they must be saved within days.

If Tsipras and Merkel talks as mere politi­cians, the re­sults will be cat­a­strophic. Greece’s banks will be pushed to the point of fail­ure, mak­ing the costs of sav­ing Greece and the eu­ro­zone pro­hib­i­tively high. If the two lead­ers meet as states­men, how­ever, they will save Greece, the eu­ro­zone, and the fal­ter­ing Euro­pean spirit. With the prom­ise of deep debt re­lief for Greece and a rap­proche­ment be­tween Greece and Ger­many, eco­nomic con­fi­dence will re­turn. De­posits will flow back into Greek banks. The econ­omy will come back to life.

Tsipras needs to as­sure Merkel that Greece will live within its means, not as a chronic ward of Europe. To en­sure such an out­come, debt re­lief and tough re­forms should be phased in over time, ac­cord­ing to an agreed sched­ule, with each party fol­low­ing through on its com­mit­ments, as long as the other does, as well. For­tu­nately, Greece is a coun­try of ex­cep­tional tal­ents, ca­pa­ble of build­ing new com­pet­i­tive sec­tors from the ground up, if given the chance.

Merkel must now take a stance that is the op­po­site of the one her fi­nance min­is­ter has pur­sued to date. Schäu­ble is un­doubt­edly one of Europe’s tow­er­ing po­lit­i­cal fig­ures, but his strat­egy for sav­ing the eu­ro­zone by push­ing Greece out was mis­guided. Merkel now must step in to save Greece as part of the eu­ro­zone – and that means eas­ing the coun­try’s debt bur­den. To do oth­er­wise at this stage would cre­ate an ir­repara­ble split be­tween Europe’s rich and poor, and pow­er­ful and weak.

Some – in par­tic­u­lar, the ever-cyn­i­cal bankers – ar­gue that it is too late for Europe to save it­self. It is not. In Europe, many in­flu­en­tial lead­ers and cit­i­zens still view the mar­ket­place as con­strained by moral con­sid­er­a­tions, such as the need to al­le­vi­ate eco­nomic suf­fer­ing. This is an in­valu­able as­set. It makes it pos­si­ble for Merkel to of­fer Greece a fresh start, be­cause it is the right thing to do and be­cause it ac­cords with Ger­many’s own ex­pe­ri­ence and history.

That idea of an eth­i­cal ap­proach to the Greek cri­sis might sound ab­surd to read­ers of the fi­nan­cial press, and many politi­cians will un­doubt­edly con­sider it naive. Yet most Euro­pean cit­i­zens could em­brace it as a sen­si­ble so­lu­tion. Europe rose from the rub­ble of World War II be­cause of the vi­sion of states­men; now it has been brought to the verge of col­lapse by the ev­ery­day van­i­ties, cor­rup­tion, and cyn­i­cism of bankers and politi­cians. It is time for states­man­ship to re­turn – for the sake of cur­rent and fu­ture gen­er­a­tions in Europe and the world.

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