April 22, 2015
In one of our latest posts we insisted on the huge and unbearable pressure exerted to the Greek economy and society by its creditors and political interlocutors in Eurozone. In this respect, we proposed a 3-year freeze of the country’s debt payment obligations. As the debate is stirred up and timeframes cannot be kept, there is imminent need for both sides to explore different perspectives.
The think-tank and communications center Bridging Europe has gathered into a single graphic all payments that Greece needs to make until the end of 2015. The overall amount exceeds € 20 billion for a period 7 months. If economy was in good shape with excessive growth rates, yes, there might be reasons to believe it would not default. Nonetheless, the economy is in a desperate condition despite the immense efforts by the Greek government to keep the minimal public functioning alive and remain consistent in its payments to public employees and pensioners.
From a similar perspective, it is not only that the Greek economy cannot pay such an amount during such a short period of time, but also the fact that there are no investments nor the necessary tranquility that the market needs to move on and get the engine back on track. Markets are self-regulated to a certain degree, but in the Greek case burdens are mounting (and stem from different sources and angles).
In this context, and given the shortage of liquidity of the public and private sector, the Greek government will be faced with a huge dilemma: either agreeing on new austerity measures to receive another bailout package or going bankrupt and stop paying its creditors.
No matter what, Minister of Finance Varoufakis keeps his voice low and takes precautionary measures to keep public sector and the minimum state function alive. One thing is certain: Greece can keep paying wages and pensions without additional lending ( as it has been the case since August 2014, even though rumours on bankruptcy were still on fire) but it cannot create conditions for investments, growth and employment. Therefore, with the current condition, Greece can function but cannot grow, and long-term, will not be able to survive while being forced to pay such a sky-rocketed debt.
PROPOSAL no 1: 3-year freeze of debt repayments
Debt payments cannot be coupled with growth and investments. Greece and Eurozone know this, but have to articulate it to themselves. Especially the latter, it consistently denies to see the “big picture” and realize that the Greek economy is suffocating. If Greece receives another bailout package, it will do that after taking additional austerity measures that will simply feed the vicious circle of debt. Therefore, I cannot see why Eurozone has not examined the positive aspects of such an agreement, as long as both sides will benefit from such a regulation and start debating on growth policies, not long-lasting recession.
PROPOSAL no 2: Creation of Investment Bank
The creation of investment bank has slightly streamed the public discourse during the previous months. Why? Because in all levels of political struggle (i.e. European Parliament, European Commission, member-states) conservative ideas keep influencing decision-making in the European Union. You do not need to know or have studied economics to understand that austerity cannot bring growth and vice versa. The creation of an investment bank would motivate investors to come in Greece and flourish the market, while the government would keep facilitating and advancing the tax system and the incentives for investments. This proposal necessitates an agreement on public debt regulation (i.e. either freezing it or writing off a part of).
PROPOSAL no 3: Opening to the BRICS
The first step was made with the rapprochement between Athens and Kremlin. Greece can benefit strategically and economically from this, especially in the energy field and transports. At the same time, synergies are being developed with China and Brazil, as Pekin is interested in expanding its presence in Piraeus port and the national railway corridors, while Brazilia and its gas and oil giant Petrobras would be extremely interested in investing into carbohydrates drillings expected to be launched by the coming months in the Aegean Sea. In this respect, Greece’s foreign policy has a clear strategy: multilateral ties and broadening of political backing from regional and global players. The opening to the BRICS is also beneficial and vital for Eurozone creditors: Greece has the potential and sound possibility to increase its income, reinvigorate its market, bring in investments, and thus be capable of paying its debt, whatever this might be after restructure or haircut.
To contact the author or for media enquiries:
T: @rapidisDimitris Rapidis