Europe’s medicine has not helped Greece to get better

THESE days Greece is faced with an important dilemma. Should it accept the current arrangement with the European institutions or reject it? This is indeed a very difficult question for anyone to answer; even for those who are strictly committed to the European identity of the country.

In my view, the main reason for this is that five years of austerity measures have not helped the Greek economy recover, and this greatly weakens the argument put forward by the European institutions that they have been prescribing the appropriate medicine to Greece.

In fact, the country’s GDP has declined by 25 per cent, unemployment has reached unprecedented levels, while the economy in general appears to be mired in the mud.

A consecutive series of spending cuts and higher taxes – a combination required for achieving the desired budget surpluses – have led to deflation with the weakest portion of the population suffering most of the blow.

The Greek economy does indeed suffer from chronic diseases which have to be dealt with (eg, idleness in some parts of the public sector, early retirement privileges for some, undeclared labour and people working for cash in hand to avoid paying tax). It is also true that most Greek governments in recent years have not tackled these issues effectively.

However, it should be emphasised that austerity measures have had a very strongly negative impact on a very productive part of the population, especially small to medium-sized businesses.

In short, the argument here is that Greece differs from countries such as the Republic of Ireland (with a strong export sector, uninterrupted foreign direct investments) and therefore unless specific development measures (eg investments approved and supported by the European Investment Bank) enter the discussion, the situation in Greece is going to get worse.

It follows that, the situation in Europe could have been much more tranquil if the European institutions had agreed on a specific development package for Greece targeting specific sectors of the economy, along with some debt relief. l Ioannis Chatziantoniou is a senior lecturer in economics and finance at Portsmouth University