Country needs to take ownership of the program
The Greek economy will return to a sustainable course if the government carries out the structural reforms included in the bailout agreement
uncertain. But I am quite confident that, if there is strong commitment to the program, which aims at ensuring economic growth, fiscal sustainability and financial stability while safeguarding social fairness, there is a good chance that this could happen.
Achieving a sustainable, strong recovery requires fiscal sustainability, in a growthfriendly manner. This should come through reductions in unproductive government spending and through shifting the tax burden away from labor to taxes which are less detrimental to growth, such as those on consumption or property. That is what both the theory and evidence suggest. Indeed, the fiscal consolidation strategy foreseen in the third program relies heavily on measures which are less detrimental to growth, such as a reform of the country’s valued-added tax system and a reduction in military spending and subsidies. An important issue is how Greece will cope with curbing tax evasion. In this regard, property taxes (if designed not to be regressive, for example, they exclude low-income housing) are more equitable, also because they are more difficult to evade. In contrast, taxes on labor should be reduced. This is where incentives should be allowed to play freely. In other words, people should be able to find jobs and entrepreneurs should be able to hire people. Well-designed taxes can actually support employment, particularly youth employment. This would, in turn, have a positive effect on confidence and therefore on consumption and investment.
No. However, what the whole experience shows is that our Union is still imperfect and needs to become a “more perfect union,” to borrow a phrase from the constitutional tradition in the United States. A union where the central bank is called upon by certain politicians to decide on the membership of certain states cannot be right. The central bank should just do the work of a central bank, i.e. maintain price stability over the medium term, and should not be called upon to take such decisions. That is why we have to move toward greater political integration. Certainly, we have been criticised for making allegedly political decisions. Those on one side say that we should have cut ELA to the Greek banking sector much earlier – not only frozen, but cut it, and cut it to zero – and those on the other side say that we should have extended ELA further, unconditionally, even if that would be a violation of the Treaty. All in all, given these extreme criticisms, I think we have acted in an independent and balanced way.
Well, I can only speak for the ECB and, obviously, I am a biased observer. The very nature of any crisis is that you are working under intense pressure to come up with a solution. What I can say with confidence is that the ECB has always acted within its mandate and outside of politics.
‘Fight to maintain the stability that you have rebuilt at great cost, and very soon you will see the benefits,’ is the message to the Greek people from Mario Draghi, president of the European Central Bank.