Euro zone must help Greece find a way to economic recovery

At least the Eurozone governments and the newly Greek government after two weeks of tense negotiations (which some described as a “game of chicken”) come to an agreement on policy parameters to tide them over a period of up to four months in which to discuss how Greece should approach its economic future on which its political future as part of the EU and NATO also depend. Germany’s finance minister, Wolfgang Schauble, who played a key part in the negotiations along with Jeroen Dijsselbloem, the Dutch finance minister, and chair of the group of euro zone finance ministers, said that gratuitous insults to today’s Germany comparing it to Nazi Germany did not help the Greek side. In itself this may be a reasonable point, but Germany’s most widely read tabloid Bild Zeitung has for the last six years been building up a picture in the German public of Greeks as feckless work-shirkers which has influenced the political debate and is indirectly reflected in the somewhat patronizing remarks about Greece by German (and also Dutch, Finnish and other) politicians who have never had to deal with in their generation anything like the Greek economic depression of the last six years, which is more comparable to the economic hardships of Europe between the wars than anything endured by any EU country since 1950.

The issue that should be discussed in the next four months is quite simple: how to enable the Greek economy to be start to provide employment and hope for its people, especially young people. That is how it is seen in Greece. Tragically it is not how it is seen in much of the rest of the euro zone although the political cohesion of the euro zone and the EU itself actually depends on a positive answer to the question.  Some of those who rebelled against agreeing with the Eurozone-Greek agreement in the Bundestag actually said that the agreement encouraged “moral hazard”, in other words implying that the Greek people had not yet suffered sufficiently from the policy mistakes made by their governments in the decade before the crisis to have been warned against making the same mistakes again. They imply that there should be no moral hazard for those who voluntarily made the foolish decision to lend money to Greece in the early 2000s, loans which created a bubble which was actually harmful to the Greek economy.

It is not fair to compare Germany’s present government with the Nazis as some Greeks have occasionally done, but it is fair to point out that six years after the end of the Second World War the countries which had formerly been Germany’s enemies were willing to provide the economic conditions for Germany to make a new start, consolidated by the 1953 London agreement which halved Germany’s debt. Surely if Germany deserved another chance in the early 1950s despite its earlier policies and their impact on its fellow Europeans, Greece deserves another chance now. However, although Germany  is seen as the main protagonist vis-à-vis Greece, it has to be said that there are many other countries whose agreement to a longer term deal with Greece cannot be taken for granted.

Whether Greece can recover depends on part on its fellow euro zone members but it does also depend on the new Greek government. First,  although right to resist ever-increasing primary surplus demands it will have to manage the public finances to maintain a primary surplus, and this is not compatible with fulfilling many of its promises. Secondly, although it understandably resists an unthinking continuation of the whole policy prescription imposed on it by the hated troika (IMF, ECB and European Commission), there are parts of the policy which are essential to providing the conditions for the private sector to generate new jobs, including reducing the costs to employers if they have to dismiss employees for economic reasons and opening up trades and professions to new entrants. Such changes are also encouraged by the OECD, an organization which the government refers to more than once in the policy outline it has given to euro zone governments. There are other parts of the prescription that the Syriza government is committed to, such as measures against corruption and tax evasion.  There are also some it can legitimately question. It has agreed to continue with privatisations in progress but should be entitled to question the benefits of further privatizations. The sale of assets can only make a modest contribution to reducing debt and takes away potential sources of future government revenue. Sometimes it can go badly wrong as for example in the case of Croatia’s privatization of Pliva to a foreign investor, which proceeded to close the company, which had a good track record of research and development of pharmaceuticals.