The discussion about what is needed to get the European Union out of its economic stagnation is gaining momentum in many European capitals and Brussels, probably at the exception of Berlin. The German government still believes that Europe’s growth drivers are working, if not perfectly at least adequately, and rejects all initiatives to revive the faltering European economy. Berlin pays little attention not only to what Athens, Rome and Paris have to say but it also voted ‘no’, fortunately ineffectively, against the latest ECB’s monetary measures to inflate a bit the real economy of Eurozone with one trillion euro.
However, the issue has gained fresh thrust after the new Greek government understood that politically it had no other option than to reject the present arrangement of austerity and social decay. The SYRIZA administration in Athens under the young and charismatic Alexis Tsipras faces an existential dilemma. They chose to try energizing the Greek economy by throwing out the Troika of accountants/auditors and kill the current pact of more loans against austerity.
The dark alternative for Tsipras is to crawl for some time in the existing swamp, to accept austerity and avoid enterprising a structural reshuffling of his country. Not much political ingenuity is needed to foresee that in such an eventuality Tsipras will briefly lose its political capital. And this could happen much sooner than the two years it took to the ex Prime ministers George Papandreou (2010-2012) and Antonis Samaras (2012-2014) to lose theirs. Then Greece would very probably drift to extreme right-wing apolitical chaos. The racist, if not fascist, Golden Dawn party came third in the recent legislative election of 25 February.
Currently, the new Greek government is waging a European charm campaign to gain backing in order to confront Germany’s obstinacy. Alexis Tsipras and his minister of Finance Yiannis Varoufakis are visiting Rome, Paris, London, Frankfurt and Brussels. Berlin insists that Athens has to carry on under the present policy pact, with the Troika of accountants/auditors enforcing austerity and not minding much about the badly needed deep restructuring of the country’s economy.
What do they offer?
The Greeks say that they are ready to discuss a new rehabilitation program but not with the auditors/accountants. They prefer political consultation with the heads of the three institutions of the Troika that is the European Commission, the European Central Bank and International Monetary Fund. Athens firstly seeks a short-term financial arrangement for the next three months involving mainly ECB’s liquidity for the Greek banks. During this time the long-term accord will be discussed with Eurozone and agreed.
In reality what Tsipras has to offer is the creation of a level playing field for European investments in the country. It’s a long tradition in Greece, regarding both the government contracts and the vital activities of the private sector including the banks, to be controlled by a few oligarchs. Those few ‘families’ have a very close and unholy association with the two parties which governed the country during the past forty years, the socialist PASOK and the centre-right New Democracy.
The Greek oligarchs
The oligarchs have preferential access, through political links, to the byzantine administrative system. To a lesser degree this is also true for the tax administration, which is still under direct political hegemony. Of course the whole system doesn’t resemble much the ‘mafia’ organization of the entire economy that prevails in some ex communist countries. Nevertheless, the direct political intervention in the day-to-day functioning of the administration during the past forty years has led to a sterile scheme. The political party armies and the ‘oligarchs’ prospered at the expenses of the rest of the population. They also gravely undermined fair competition within the country and damaged the effectiveness and competitiveness of the economy in international markets.
Gradually the organization of the politico-economic ‘Greek system’ was extended to encompass more ‘clientele’ from larger economic/social groups like the employees of public utilities and the state monopolies in electricity and water supply. A preferential position is also reserved to university professors, lawyers, notary publics, pharmacists, media people and other minor social groups and local interests. On a base of tight interconnection between the political class, the administration and the business community, fraudulent behaviour and corruption flourished.
What foreign investors?
A side but important effect was that the foreign direct investments, the kind related to the real economy (not the financial sector) were made dependant on access to the ‘system’. Invariably all the significant projects planned and financed by foreigners had to find a local agent-oligarch as partner, whose only contribution would be the ability to sail through the dark spaces of the chaotic licensing procedures, the administration, the judiciary and the political elite. Every major or medium investment project needs hundreds if not thousands of licenses and approvals, which can be revoked at every stage by an equally incompetent, time-consuming, politically influenced and in cases corrupt judicial system. Not to say anything about the tax authorities and the various administrative checks and controls where political sway and arbitrariness reign.
Unfortunately, during the past five years of crisis and harsh economic policies, successive PASOK and New Democracy governments didn’t try enough to enforce groundbreaking reforms. The left wingers of SYRIZA, who never participated in running the country have no other option left than to try. To this effect the new government of Alexis Tsipras offers to fellow Europeans an effective groundbreaking change of the ‘system’. He promises to tax the rich, fight corruption, destroy the ‘clientele state’ and upgrade the public and tax administrations to European standards. In this way he says he will transform Greece into a level playing field for foreign investors.
A new bet
However what Tsipras really has to offer is a long-term gamble, in successfully purging Greece’s malfunctioning politico-administrative and business structures. In return he asks for a very tangible and immediate advance of €10 billion from ECB, under the form of liquidity coverage for the Greek banks. He also demands a far-reaching change of the rigorous auditing arrangement around the use of the loans granted to Greece. Indirectly this prospect would imply less austerity.
The question remains though, if the other Europeans are willing to be convinced by another Greek who promises things, like Papandreou and Samaras before him. We will soon find out if Tsipras is persuasive enough and the rest of the Europeans sufficiently sharp-sighted so as to see that the other option is more detrimental to everybody. The spectre of a Greek political chaos haunts the minds of many.
Eurozone like Greece?
Nonetheless, the interesting thing is that the discussion about Greece’s future is related, to some degree, with the debate over Europe’s basic options. More precisely, everybody wonders if the German austere philosophy or the debt based growth policy proposal voiced by the others is best for Eurozone.
The European Parliament expressed very eloquently this historic dilemma. A Press release issued last Monday by the European legislative body was entitled, “Europe between austerity and growth”. It ended like this: “Further complicating matters is the divide between those who argue for the continuation of austerity policies and those that blame cuts in public spending for weak growth and increasing unemployment”. The ‘divide’ refers to the entire body of the European legislators, nothing less.